HARP Home Affordable Refinance Program
HARP Homeowner Affordable Refinance Program is the federal
government's latest attempt to address the ailing housing market. You remember in previous articles in April of 2010, we talked
HAMP, or the Homeowner Affordable Modification Program which
set provisions for struggling homeowners who were in default, to
modify their loan to more affordable terms so they could keep
HAFA, or Home Affordable Foreclosure Alternatives, program,
allowed homeowners that were in an imminent foreclosure
situation or already defaulted on their loan up to a year to
sell the property and get out. HAFA was an effort to streamline
the short sale process, although most banks didn't really
embrace the program the way that the government had hoped. Now
the government announced changes to the federal program Monday
that will make it easier for struggling homeowners to refinance
at today's near-record low interest rates with HARP.
Under the new program, homeowners who owe more on their homes than they are
worth will be able to refinance, no matter how much they are underwater, as long
as they are current on their payments. Some estimate that more than 1 million
homeowners could get cheaper mortgages as a result.
The revamped HARP Home Affordable Refinance Program will also streamline the
refinancing process, doing away with certain types of appraisals and
underwriting requirements, and reducing or eliminating fees that prevented
homeowners from refinancing in the past.
More than 890,000 homeowners have already refinanced under HARP, which is
available to borrowers with loans backed by Fannie Mae and Freddie Mac
originated before May 31, 2009, but hundreds of thousands more could not qualify
-- mainly because of the previous 125% loan-to-value limit on the program or
because banks would not take on the risk.
"We know there are many homeowners who are eligible to refinance under HARP and
those are the borrowers we want to reach," said Edward DeMarco, acting director
for the Federal Housing Finance Agency (FHFA), which oversees Fannie Mae and
Currently, about 11 million borrowers are underwater on their mortgages, with
about 4.7 million of those loans meeting or exceeding the 125% loan-to-value
limit. By the time HARP expires in 2013, the federal housing agency estimates,
up to 1 million more borrowers may benefit from the new regulations.
Many of those borrowers will be from states like Florida, California, Nevada and
Arizona where home values have been hit the hardest. In metro areas like Las
Vegas, for example, prices have plunged nearly 60% from their early-2006 peak.
The new rules and other details have yet to be finalized, but FHFA said that
should all be worked out by Nov. 15th. Banks may even start issuing refinanced
loans as early as Dec. 1, 2011.
Lifting the loan-to-value restrictions may still only help a limited number of
borrowers though. The main problem with HARP is that mortgage holders still must
be current on their payments for the past six months, with no more than one
missed payment in the past 12 months, and they also must be able to qualify for
a new loan.
However, the changes should allow banks to refinance loans without worrying that
Fannie Mae and Freddie Mac will force them to repurchase the loans if the
In the past, banks have been overly reluctant to refinance loans because they
didn't want to take on that liability. By doing away with that liability, more
lenders will compete to refinance the loans, which should make them more
affordable for borrowers. Hopefully, this will help remove one of the biggest
barriers to refinancing through HARP, Home Affordable Refinance Program.
Under this newly-revamped program, Fannie and Freddie will also reduce the fees
they have charged in the past in order to enable borrowers to better afford the
new loans. Among the fees that may be reduced or eliminated are those for loan
level price adjustments. Going forward, borrowers may not be penalized for
less-than-perfect credit scores, for example.
Fees will also be waived for some underwater borrowers who refinance into
20-year or other, shorter-term loans. By doing so, it could help homeowners get
above water faster.
A homeowner who has a $200,000 balance on a 30-year mortgage with a 6.5% rate
and a home value of $160,000, for example, currently makes payments of $1,264 a
If they refinance into a 20-year fixed-rate loan at 4.25%, it will reduce
monthly payments to $1,238 and slash the balance to $160,000 in just
five-and-a-half years. If they refinance to a 30-year loan at 4.5%, however,
their monthly payments will be much lower, $1,038, but it will take 10 years to
It's essentially an opportunity for borrowers to improve their household balance
sheets by repaying their mortgages much quicker and get back above water.
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