HARP 2.0 Details and Guidelines
What is HARP 2.0?
HARP 2.0 is a mortgage refinance program designed to help homeowners whose properties have become underwater, meaning those who owe more on their homes than the property is worth. HARP 2.0 was enacted on December 11, 2011 and revises the Home Affordable Refinance Program (aka HARP 1.0) enacted in March of 2009. The first HARP program was considered a failure because it had only helped a small number of the homeowners eligible for the program; therefore a second program was created that addressed the flaws of the first program.
HARP 2.0 is designed to assist those homeowners who are capable of making their mortgage payments, but who are not capable of taking advantage of the low interest rates currently available. In the general mortgage market many homeowners have been locked out of refinancing because they owe far more than their homes are worth. When refinancing with a HARP 2.0 loan, there is no restriction on how far underwater a home can be.
HARP 2.0 Eligibility Requirements
- Mortgage must be owned by Freddie Mac or Fannie Mae
- Freddie Mac or Fannie Mae must have obtained the mortgage before May 31, 2009.
- Homeowners must be current on the loan with no late payments in the last six months, and no more than one late payment in the last twelve months.
- Homeowners cannot have refinanced under the original HARP program
- Mortgage must be for at least 80% of the home’s value
A tricky question for a borrower is the Freddie Mac or Fannie Mae requirement. Since those organizations do not deal directly with the public, a homeowner is unlikely to know if their mortgage is owned by either company. Both have created look ups on their websites to assist homeowners.
HARP 2.0 Benefits
The law requires that any loan given under the HARP 2.0 program provides the borrower with a real benefit. A lower interest rate is a very common way lenders meet this requirement, however there are a few additional ways to meet the requirements:
- Reduced monthly payment
- Shorter term - Borrowers can also decide to shorten the length of their mortgage. Since the lower interest rate means a borrower will have to pay back less over the life of the loan, a borrower can keep the same monthly payment, but shave off a few years from their loan.
- Movement towards a more stable product (for example, transition from an adjustable rate to a fixed rate)
Another real benefit is that for many loans, the borrower will not be required to take out PMI on the loan. So long as the borrower was not paying PMI on their original mortgage, after refinancing through HARP 2.0, the borrower will not be required to take out a new PMI policy. Even if the borrower did have mortgage insurance, the new loan will only require them to get a new policy equal to or less than their old policy. It would be almost impossible to find that outside of this program. Many borrowers look for ways of avoiding PMI, refinancing through a HARP 2.0 loan is one of the simplest.
HARP 1.0 Information
In March of 2009, the original HARP program came into effect with the goal of easing the housing crisis. It was meant to address the same structural problem in the housing market: underwater homes. There was a general fear that many borrowers would simply choose to walk away from their homes, since a homeowner might not gain anything by paying off their loan.
Unfortunately the program was not very successful. Originally it was thought that up to 9 million homeowners would be eligible for a refinance; near the end of the original HARP, only a few hundred thousand had taken out a HARP backed loan. Many lenders did not come on board with the original program, and those that did not fully embrace it. In the update to the program, both roadblocks were removed, as nearly all major lenders are fully participating, after being given important concessions.
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