What is the Home Affordable Refinance Program (HARP)?
The Home Affordable Refinance Program (HARP) was established by the Federal Housing Finance Agency (FHFA) in March 2009. It provides an opportunity for underwater and near-underwater homeowners to refinance their homes, even when their mortgage balance exceeds the current value of their homes. The program was particularly created for homeowners who are current on mortgage payments but are struggling to take advantage of lower interest rates because of the significant drop in home values post the U.S. housing market correction during 2006–2011.
Key Objectives of HARP
- Enable eligible homeowners to benefit from lower interest rates.
- Provide financial relief to already responsible borrowers by improving affordability.
- Reduce the likelihood of default and foreclosure by allowing more manageable payments through refinancing.
Example
John and Jane Nelson have an 8% interest rate mortgage and owe $125,000 on their house, which is now worth only $100,000 due to market devaluation. Traditionally, lenders would only refinance up to 80% of the home’s value ($80,000), requiring the Nelsons to pay the remaining $45,000 in cash upfront, which they can’t afford. Under HARP, the Nelsons can refinance the entire $125,000 balance at a lower current interest rate without making the large upfront payment.
Frequently Asked Questions (FAQs)
Who is eligible for HARP?
Eligible homeowners must meet several criteria: their loan must be owned or guaranteed by Fannie Mae or Freddie Mac, the mortgage must have been originated on or before May 31, 2009, and they must be current on mortgage payments, with no late payments in the last six months and no more than one late payment in the past 12 months.
How can HARP benefit homeowners?
HARP allows homeowners to refinance at lower interest rates, which can significantly reduce their monthly payments, enhance cash flow, and even build equity faster if they choose to shorten the term of their new loans.
Are there any limits on how far underwater a homeowner can be?
Originally, HARP had a 125% loan-to-value (LTV) cap. However, this cap was removed to aid even more severely underwater borrowers, making the program more inclusive.
Can homeowners with second liens or junior liens still qualify?
Yes, homeowners with second or junior liens can still qualify for a HARP refinance, provided the primary mortgage qualifies, and the secondary lienholder agrees to subordinate the second lien to the new first lien.
Does HARP cancel the existing mortgage insurance on the old loan?
No, any existing mortgage insurance remains with the new loan. If the original loan did not have mortgage insurance, then the refinanced HARP loan also would not require it.
Mortgage:
A loan often used to purchase real estate, where the property serves as collateral for the loan.
Underwater Mortgage:
A scenario where a homeowner owes more on the mortgage than the current value of the home.
Loan-to-Value Ratio (LTV):
An assessment of lending risk that lenders examine before approving a mortgage, calculated by dividing the mortgage amount by the appraised property value.
Federal Housing Finance Agency (FHFA):
A U.S. government agency that regulates and oversees Fannie Mae and Freddie Mac to ensure housing goals are met in a manner that supports financial safety and soundness.
Online Resources
References
- Federal Housing Finance Agency. “HARP Program.” FHFA.gov.
- Fannie Mae and Freddie Mac Guidelines.
Suggested Books for Further Studies
- “The Homeowners Defense: Strategies to Reduce or Eliminate Mortgage Debt” by Elizabeth Warren
- “The New Homeowner’s Guide to Understanding Haggle-Proof Mortgages” by John P. Case
- “All About Mortgages: Insider Tips to Save You Money” by Julie Joy and R.L. Brenner
Real Estate Basics: HARP Fundamentals Quiz
### Does the HARP program allow for refinancing even if the homeowner owes more than their home's current value?
- [x] Yes, homeowners can refinance regardless of the home's current value.
- [ ] No, homeowners cannot refinance with HARP if they owe more than their home's current value.
- [ ] Only up to 80% of the home's value can be refinanced.
- [ ] HARP only applies to homes within 120% of their current value.
> **Explanation:** HARP was specifically designed to enable refinancing for homeowners who owe more than their home's current value, without LTV restrictions.
### Must a homeowner be delinquent on payments to qualify for HARP?
- [ ] Yes, only overdue mortgages are eligible.
- [x] No, the homeowner must be current on mortgage payments.
- [ ] Both current and delinquent mortgages qualify.
- [ ] Only those in the foreclosure process qualify.
> **Explanation:** To qualify for HARP, the homeowner must be current on their mortgage payments and have a good payment history within the last year.
### Which entities must own or guarantee the loan for a homeowner to qualify for HARP?
- [ ] FHA or VA
- [ ] HUD
- [ ] National Housing Agency
- [x] Fannie Mae or Freddie Mac
> **Explanation:** Homeowners must have their loans owned or guaranteed by Fannie Mae or Freddie Mac to be eligible for HARP.
### Does HARP require an appraisal in all cases?
- [ ] Yes, an appraisal is always mandatory.
- [x] No, appraisals are not always necessary.
- [ ] Only if the loan is for more than 100% of the home value.
- [ ] Only if the homeowner requests an appraisal.
> **Explanation:** Some HARP refinances may not require a new appraisal; the necessity depends on the specific lender's requirements and automated valuation models used.
### From what date must the mortgage have been originated to be eligible for HARP?
- [ ] June 1, 2010
- [x] May 31, 2009
- [ ] July 4, 2008
- [ ] December 31, 2012
> **Explanation:** To be eligible for HARP, the mortgage must have been originated on or before May 31, 2009.
### How many missed payments are allowed in the last year for HARP eligibility?
- [ ] Two
- [x] One
- [ ] Five
- [ ] None
> **Explanation:** For HARP eligibility, the homeowner can have no more than one missed payment in the last 12 months.
### What type of homeowner profile is aimed for HARP support?
- [ ] Those in danger of foreclosure
- [x] Those current on their mortgage but unable to refinance due to lowered home values
- [ ] First-time homebuyers
- [ ] Investors of rental properties
> **Explanation:** HARP targets homeowners who are current on their mortgage payments but are unable to refinance due to the decreased value of their homes.
### Can homeowners without mortgage insurance still benefit from HARP?
- [x] Yes, and new mortgage insurance will not be required.
- [ ] No, mortgage insurance is mandatory.
- [ ] Only if the appraised home value is below the original loan amount.
- [ ] Yes, but they must acquire mortgage insurance before refinancing.
> **Explanation:** Homeowners without mortgage insurance on their original loan do not need to acquire new mortgage insurance under HARP.
### What is the main goal of HARP?
- [x] To allow underwater homeowners to refinance and reduce their mortgage payments.
- [ ] To increase mortgage interest rates for long-term stability.
- [ ] To provide down payment assistance.
- [ ] To support foreclosure proceedings.
> **Explanation:** HARP aims to facilitate refinancing options for underwater homeowners, allowing them to benefit from lower interest rates and reduce their mortgage payments.
### Which aspect of HARP was adjusted to include more underwater borrowers?
- [ ] Elimination of early payment penalties
- [ ] Lender incentives
- [x] Removal of the LTV cap
- [ ] Lowering of credit score requirements
> **Explanation:** Initially, HARP had an LTV cap, which was later removed to allow more underwater homeowners to participate in the program.
