The ABC of Home Affordable Refinance Program (HARP)

Are you a struggling homeowner? Do you find it hard to keep up despite spending a major share of your income on mortgage payments? The government has a program called Home Affordable Refinance Program (HARP) for homeowners like you who are just steps away from foreclosure.

What Is Home Affordable Refinance Program (HARP)?

The Federal Housing Agency offers this mortgage refinancing program to those homeowners whose home value is less than their loan’s outstanding balance. Their mortgage also has to be guaranteed by either Fannie Mae or Freddie Mac before May 31, 2009.

The federal government launched the program in 2009 to help struggling homeowners to refinance their mortgage and avoid foreclosure in the process. It was a response to the financial crisis in 2008 that left many homeowners underwater on their mortgages.

One similar program called Home Affordable Modification Program (HAMP), which was also launched in 2009, expired at the end of 2016. However, the government has extended the HARP across 2018.

Eligibility Requirements for HARP

The government makes the financial aid available to those homeowners who have met some specific requirements. The qualifying standards are:

  • You must have secured the loan from either Freddie Mac or Fannie Mae before June 1, 2009. Other lenders or loan types won’t count in this case. If you are not sure who owns your mortgage, use the Making Home Affordable website to find out.
  • Your home’s value should be lower than the outstanding balance of your mortgage. To be more precise, the ratio of loan to home value must be more than 80%.
  • The applicant has to pay his or her mortgage installments regularly with the record of no more than one late payment in the last 12 months. So, homeowners who are already in foreclosure or have quitted due to negative equity will be ineligible.

The Problems of HARP

Although HARP helps homeowners to keep up with their mortgages by refinancing it and allows to have it for second homes and investment properties too, it has some caveats that are hard to ignore:

It does not reduce the amount of the principal balance. In reality, the amount may even grow bigger.

  • The lower interest rate will decline your payment but it can increase too if you have a mortgage interest before applying for this program. However, you don’t have to pay the insurance if you didn’t have it before.
  • The program does not allow you to refinance a home equity loan or a fixed-rate loan. In case of such mortgages, your best bet is to get a second lender to subordinate. But, the chance of securing a second lender is pretty low.
  • It is possible to change the loan type to recourse such as changing the terms from purchase money to hard money. However, if you are going to face foreclosure eventually, you could be exempted from personal liability (depends on the state you live in) if the mortgage remains purchase money.