What is the Home Affordable Refinance Program?

The Home Affordable Refinance Program (HARP) worked for almost ten years to help responsible homeowners refinance loans they owed more on than the home was worth. While HARP has ended, there are other options available that work similarly for homeowners with underwater mortgages.

To better understand your options, let’s first look at what the Home Affordable Refinance Program did and how it helped homeowners. 

In 2009, when the housing downturn had changed the market, HARP was created by the Federal Finance Agency for homeowners with a history of on-time payments. These homeowners were “underwater” on their mortgage, meaning they owed more on the loan than the home was worth due to the changing market. 

The Home Affordable Refinance Program was structured to address specific needs and add benefits unique to this situation that you won’t find with traditional refinancing. 

How HARP Helped Homeowners

The refinancing program was able to lower the mortgage rate, shorten the term of the loan, and required less paperwork than a traditional refinancing. It could also transfer an adjustable rate home loan to a fixed-rate mortgage, and would bundle the closing costs of the refinance into the new loan. 

The Federal Housing Finance Agency (FHFA) estimated that homeowners saved $2,400 per year on their mortgage payments through HARP.

These distinct benefits encouraged homeowners to continue paying on time and stay in their homes at a time when many were choosing to foreclose instead. Refinancing adjusted the loan terms so staying still made financial sense. 

When the real estate market takes a turn and home values quickly fall, homeowners who don’t yet have a lot of equity in their home are often the victims of falling underwater. Being “underwater” or “upside-down” on a mortgage means that you owe more on your loan than your home is worth. This is often known as having a high loan to value ratio, or LTV. Your LTV is determined by your mortgage loan balance divided by your appraised home value. 

Having a high loan to value ratio makes it difficult to refinance or to sell your home, because the property is no longer a good investment for a buyer or mortgage lender. 

In 2009, many American homeowners were in this situation. That’s when the government created HARP to help homeowners in this situation with a history of on-time payments. After being extended twice, it was decided that fewer homeowners were in the situation to apply for HARP, and the program was stopped at the end of 2018. 

To quality for HARP, homeowners needed to have a history of on time payments. They couldn’t have a late payment more than 30 days late in the six months prior to their application, or more than one late payment in the previous year. They also have to have a loan backed by Fannie Mae or Freddie Mac. The loan needed to be underwater, so it needed to have a loan to value ratio above 80%. You could only refinance with the program once. Your original mortgage had to begin on or before May 31, 2009. It could be your primary residence, secondary residence, or an investment property. If all of these requirements were met, then the HARP program was a strong solution for many homeowners.

Now the question has become, what will homeowners in this situation do instead?

The New Solution for High LTV Refinancing

There are two new programs available for homeowners who are underwater and in need of refinancing. The two programs are Fannie Mae’s High LTV Refinance Option and Freddie Mac’s Enhanced Relief Refinance (FMERR). 

The new programs still offer many of the same benefits, including lower interest rates, shorter loan terms, lower monthly payments, and the option to convert an adjustable rate home loan to a fixed-rate mortgage.

The requirements in these programs are somewhat different from HARP.  

The first difference is that these two new programs do not limit how many times you can refinance through them. However, if you already refinanced through HARP, you are not eligible for these new programs. 

Home loans are only eligible for these new programs if they originated on or after October 1, 2017. Those with loans originated prior to this date will have to pursue traditional refinance programs. 

These new programs also have a requirement that HARP did not. Your high LTV loan needs to be at least 15 months old before you can apply for the new programs. This helps the lender see that you have a history of on time payments. 

It also avoids a predatory lending practice known as loan churning. This is where lenders tell homeowners that they should refinance too often, this way the lender is able to charge the fees and interest rates of closing costs each time the borrower refinances. In this situation, there would be little to no benefit to the borrowed to refinance so frequently. 

Another key difference between HARP and the new programs through Freddie Mac and Fannie Mae is the requirement pertaining to the LTV ratio. In the new programs, a minimum ratio of 97.01% is required when refinancing a primary residence. On a secondary residence the minimum LTV ratio requirement is 90.01%. This is much higher than the 80% LTV ratio required in HARP and will limit the number of borrowers eligible for these programs.

Borrowers looking to refinance with a lower LTV than this should be able to hopefully refinance using traditional products, so there are other options available for people who don’t qualify for these programs. 

Similar to the Home Affordable Refinance Program, in order to apply for either of these programs, you will need to have not missed more than one payment in the 12 months prior to your application. You will need to have not made any late payments in the past six months. You will need to provide proof of income. 

It’s also required that the lender sees you will receive some kind of benefit from refinancing. So you will need to have a lower monthly payment, a lower interest rate, a shorter loan term, or be transferring from an adjustable-rate mortgage to a fixed rate home loan. You can benefit in more than one way, but need to be receiving at least one advantage to the refinance. 

Related Questions

What information will I need when I apply for one of these refinancing programs?

You will need to collect your recent financial information. This will include your recent paystubs, your more recent income tax return, your mortgage statements, and if you have a second mortgage, information on that as well. Bring this information with you when you speak to a lender in person or have it ready when you speak to them online or over the phone. 

Why should I use one of these refinance programs instead of a traditional refinancing product?

These programs are meant for people with a high LTV, so many traditional programs aren’t an option. These programs have the advantage that they don’t require a minimum credit score from the borrowed. They also have an application process that is streamlined specifically for people in an underwater mortgage situation. 

Do I need mortgage insurance for the new loan? What if I already have it?

If you don’t currently have mortgage insurance, you won’t need it on the new loan. If you already have a mortgage insurance, it will be required that you transfer it to the new mortgage. If you have lender-paid mortgage insurance, you will also be able to transfer that to the new loan product. 

Moving On From the Home Affordable Refinance Program

The Home Affordable Refinance Program was a strong solution for underwater homeowners for almost ten years. It helped borrowers who had no other option for refinancing restructure their loans create a loan product that worked for their needs. 

While HARP is no longer an option, the two new programs created to replace it still offer the great refinancing benefits needed for homeowners with a high LTV ratio. This not only makes it so that borrowers have monthly payments they can better handle, it turns their home loans into the smart investments they were always intended to be.