Alternatives to the Home Affordable Refinance Program (HARP)
The Home Affordable Refinance Program (HARP) ended on Dec. 31, 2018. It was started in the wake of the 2008 financial crisis to help underwater borrowers refinance their homes. An underwater mortgage means that you owe more on your home than it's worth. Many homeowners found themselves in this situation after housing prices dropped in 2008. HARP's end doesn't mean homeowners are out of luck, though. You can still find assistance if you're stuck with a mortgage that you can no longer afford.
HARP had relatively straightforward qualifying standards:
- Fannie Mae or Freddie Mac must have owned your mortgage. Other types of loans did not qualify for HARP.
- Your loan must have originated before June 1, 2009.
- Your loan-to-value ratio must have exceeded 80%.
- You must have been current on your payments, with no more than one late payment in the previous 12 months.
Options After HARP
Fannie Mae and Freddie Mac developed new programs that started as HARP ended. You can look up your loan online to see if Fannie Mae or Freddie Mac hold it by going to the loan lookup tools on the Making Home Affordable website. Fannie Mae's program is called the High Loan-to-Value Refinance Option. Freddie Mac's program is called the Enhanced Relief Refinance Mortgage.
The High Loan-to-Value Refinance Option program is for Fannie Mae mortgages originated on or after Oct. 1, 2017. The Enhanced Relief Refinance Mortgage program is for Freddie Mac mortgages with an application date on ar after Nov. 1, 2018. Both programs have similar requirements. For both, you must:
- Have had the mortgage for at least 15 months
- Have no 30-day delinquencies in the past six months
- Have no more than one 30-day delinquency in the past year
- Have a loan-to-value ratio of at least 97.01% for a one-unit home
Refinance Program Drawbacks
These programs have their drawbacks. Keep these in mind as you evaluate your refinancing options:
- The biggest problem is that the programs do not reduce the principal balance. In fact, it makes the principal balance even bigger.
- You will continue to pay mortgage insurance if you owe it now. Although your payment might decline due to a lower interest rate, your payment might also go up, too. However, Fannie Mae's guidelines state that if you did not have mortgage insurance before, you will not now.
- You cannot pay off or refinance a fixed-rate second loan or home equity loan through these programs. The best thing you can do is get the second lender to subordinate, meaning to remain in the second position. But there is little incentive for a second lender to agree. Why would a second lender want to jeopardize its position and sink into the well of no equity even further?
Short Sale Versus Refinancing
Under these programs, in two years, your home might still be underwater and worth less than you owe. Sellers who arrange short sales can often qualify to buy a home in two to three years. So they essentially trade an underwater home for a home just like it but with a much smaller mortgage, except they rent for two years first.
Talk to Your Lender
If you're struggling with paying your mortgage, the most important step you can take is to talk with your lender. Lenders typically have programs to help you if you're experiencing financial difficulties. Silence makes things worse. If you're nervous about talking to your lender, consider meeting with a housing counselor.