HARP helps upside-down borrowers



Kristin Arnold: As many as 1/3 of mortgage borrowers owe more than their homes are worth, with the problem mainly acute in markets where home prices have fallen the most - California, Arizona, Nevada, and Florida. But a little known and often misunderstood government program exists to help upside-down borrowers refinance their loans. Here to explain is Greg McBride, senior financial analyst with

Kristin Arnold: What is HARP and what is it designed to do?

Greg McBride: The HARP Program and that stands for the Home Affordable Refinancing Program, this is a government initiative and it's designed to facilitate refinancing for people who have very little equity in their home or owe more than their home is currently worth. In other words, they are upside down. Now, this is not the same as a thing as the medication program, known as HAMP that gets all the attention and all the focus. A lot of people don't even know this HARP program exists, that why I refer to it as the Rodney Dangerfield of government housing programs because it just doesn't get the respect it deserves.

Kristin Arnold: Who is eligible?

Greg McBride: There are really three key eligibility requirements here. First, your loan has to be owned or guaranteed by Fannie Mae or Freddie Mac. Now, most loans, the majority of loans actually fall into that category. Secondly, the amount that you owe can be as much as, but not more than 25 percent above the current market value of the property. So, a lot of people that are upside down are going to be helped by this…but not all. The third requirement is that the borrower has to be current on their payments. If you're behind on your payments, you're not going to qualify.

Kristin Arnold: When does is make sense for a homeowner to pursue a HARP refinance?

Greg McBride: I can think of a couple good examples here. Let's say in the waning days of the housing boom, anybody who bought a house, if they took a fixed-rate mortgage, they took one at a rate of 6 or 6.5 percent. Or they took an adjustable rate loan. And I think either of those are good candidates for a HARP refinance. Fixed mortgage rates right now are below the 5 percent mark, so refinancing from 6 or 6.5 percent to down below 5 percent not only reduces that interest it reduces monthly payments and frees up some room in the household budget. If you took an adjustable rate loan then, you know you're sitting there now with a rate that might be 3 or 4 percent, but you know it's going to reset higher at some point, perhaps significantly so a HARP refinance could allow you to trade away the uncertainty of that adjustable rate loan and lock in the predictability of that fixed monthly mortgage payment for years to come.

Kristin Arnold: Thank you for explaining a little but about HARP, Greg. And of course there is much more information on HARP refinancing and to find out what your options are and how much money you could possibly save, visit Bankrate's special feature on HARP under the mortgage section. For, I'm Kristin Arnold.

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