Editor’s Note: The HARP program expired December 31, 2018, and a popular replacement option, the Freddie Mac Enhanced Relief Refinance (FMERR) loan expired September 30, 2019.
However, Fannie Mae’s High LTV Refinance Option (HLRO) currently has no expiration date. Similar to HARP and FMERR, it’s a great loan option for underwater homeowners who don’t have enough equity earned in their home to qualify for a refinance.
Even though home values have risen in many areas of the country, there still remains plenty of people with underwater mortgages – meaning they owe more on the mortgage than their home is worth.
“It’s between 13 and 17 percent nationwide according to Zillow, National Association of Realtors, housingwire.com and other sources,” says Linda Weathers, loan officer at Security National Mortgage Company in Alameda, Ca. “It was considerably more than that, but home values have come back in many areas. Obviously, areas that are more desirable have built equity back faster than those not so desirable.”
That means there are still many people out there who either haven’t tried to refinance, have tried and failed, or just don’t know where to turn.
“I’ve been working with distressed homeowners now for about seven years, pretty much since the crash,” Weathers says. “Homeowners do have options such as working with their current lender or another lender who is participating in HARP.”
HARP (Home Affordable Refinance Program) started in 2009 as a government-sponsored program for homeowners to refinance from their high-interest rates, underwater mortgages and declining home values. HARP 2.0 came around two years later to help an even broader spectrum of homeowners in trouble.
To use HARP, there are certain conditions that have to be met, Weathers says:
- The home is an owner-occupied, investment, or vacation home of one to four units.
- The loan is owned or guaranteed by Fannie Mae or Freddie Mac, and it was originated before June 1, 2009.
- At the time you apply for HARP, you are current on your mortgage payments.
- Must be more than 80 percent loan-to-value (LTV). Some lenders are refinancing up to 300 percent LTV.
- It is for your first lien, not a second mortgage.
HARP Ineligible? Here are Other Options.
Not everyone is qualified to get a HARP loan. Many people are hoping that the government comes up with a HARP 3.0 version that would include a lot more people, especially people that didn’t have a mortgage that originated with Fannie Mae or Freddie Mac, or who bought a house after the June 1, 2009 cut-off date.
“Right now, there are no (government) programs for them. But through their current lender, homeowners can attempt a loan modification, forbearance plans or settlement,” she says.
Here are descriptions of these other refinancing options:
Settlement – Some second lien lenders are doing this, including her mortgage company. It is s basically a short payoff and then closing of the loan, Weathers says.
Forbearance – This is when your mortgage payments are reduced or suspended for a period you and your lender agree to, according to Federal Trade Commission’s Consumer Information website. At the end of that set time, you begin paying your regular mortgage along with a lump sum payment or additional partial payments for a number of months to bring the loan up to date.
Modification – This is a permanent change in one or more of the loan’s terms and results in a payment the borrower can afford, according to the U.S. Department of Housing and Development website. The government offers HAMP, the Home Affordable Modification Program, designed to offer struggling homeowners who are struggling to pay their mortgage, or are already behind on their payments, a chance to reduce their monthly payments by offering lenders financial incentives for approving loan modifications. FHA and VA both have modification programs for those underwater, Weathers says.
“They basically all do the same thing – reset the term to 30 years from the new refinance date and may reset the interest rate. If there was mortgage insurance on the original loan, that insurance will also be on the new loan,” she says.
Her advice to those who still underwater but can’t refinance for one reason or another is to try very hard to keep affording your payments.
“Stay current and eventually, the value will be more than the loan balance. Then, depending what interest rates are doing, it might make sense to refinance or not. Worry more about paying your mortgage off than when you can refinance,” Weathers says.
It’s a tough road for many that don’t have an outlet for refinancing, says Ken Schiff, mortgage originator at OJ Mortgage in Tampa, Fla. He truly believes that there are many people that could be helped if HARP 3.0 would be established. In fact, he meets these people all the time when he sets up his booth at home shows in Florida to explain HARP and other refinancing options to underwater borrowers.
“I now have a database of 1,200 people that don’t qualify for HARP 2.0, and they are waiting for something different from the government to help them out,” he says.
No HARP 3.0 Equals Stalled Economy
A new program is not only needed for those who are underwater and can’t get help anywhere else, but he says it is needed to stimulate the U.S. economy even more.
“If people can’t see an increase in the value of their homes, they can’t put their homes on the market. If you can’t have home sales, the housing market is stalled, and that affects everyone,” he says.
Housing prices have increased in some areas, especially the ones that had been so damaged in the first place such as in Florida.
“But prices are not burgeoning like they used to be. Housing is such a key factor in our economy. We need to put more pressure on the government to allow more people to refinance,” he says.
For those that he does help refinance, it’s a great relief to the borrowers to have lower payments and more money each month.
“There could be millions of people with an extra $400 or more a month in their pockets if they could refinance, and others who would be able to put their houses on the market if they weren’t underwater anymore,” he says. “That’s a big domino effect.”