After HARP mortgage program ends, options for underwater borrowers


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The Home Affordable Refinance Program, or HARP, is expiring on December 31, 2018. HARP was created in coordination with Fannie Mae and Freddie Mac to help homeowners with no equity or negative equity refinance their mortgages. Since its inception in 2009, the program has put millions of people into more affordable home loans.

Fannie and Freddie are each rolling out High loan-to-value programs that will fill the gap HARP leaves behind at the end of this year. Fannie’s program is simply known as the high LTV refinance option, while Freddie’s is called Enhanced Relief Refinance. HARP and these two new programs have some things in common as well as some important differences.

A key distinction is that HARP was created in response to the financial crisis. Its mission was to fix a specific problem, whereas both of the new high LTV programs are designed to be a permanent refinance solution for eligible borrowers.

49,000 people still qualify for HARP

As of October 2018, there were 49,000 HARP-eligible homeowners, according to the FHFA. In effect, thousands of people are potentially missing out on getting into less-expensive mortgages and building or rebuilding their home equity faster.

These borrowers can’t count on the new Fannie and Freddie programs to help them because the qualifications are different. Fannie and Freddie’s programs will serve mortgages that were originated on or after October 1, 2017, in contrast to HARP which required originations to have taken place on or before May 31, 2009.

“Borrowers who don’t elect to refi under HARP, while the program is still available, may be missing a really great opportunity since it’s ending this year,” says Lauren Shepherd, project manager for HARP.

Who are these programs good for?

Both Fannie and Freddie’s programs are viable options for existing customers, who are making on-time mortgage payments but may be casualties of home price dislocations. Dislocations are results of stressed financial markets that price assets incorrectly. For homeowners, this can mean a sudden drop in your home’s value.

This can make it almost impossible to refinance your mortgage, even if you have great credit.

Main benefits of high-LTV refinancing

Both programs offer key advantages for eligible homeowners, including:

  • Reduced monthly payments.
  • Lower interest rates.
  • Going from an adjustable rate mortgage, or ARM, to a fixed rate, when applicable.
  • Shorter terms.

By reducing monthly payments and interest rates, you’ll be able to build up your home equity faster and increase your profitability if you decide to sell your home.

Three key differences between new programs and HARP

Essentially, the new Fannie and Freddie programs aim to serve people in the same situations. However, there are a couple major changes.

The first is that while HARP only allowed homeowners to use the program once, the new high LTV programs don’t limit how many times people may use it. Secondly, there is no expiration on these programs.

This is part of their overall long-term strategy to establish the new programs as a sustainable solution for disruptions in the housing market, on both regional and national levels.

The third major change is the loan age requirement, which didn’t exist with HARP.  The new program requires loans to be at least 15 months old before they’re eligible for the refinance programs.

There are a few reasons for this, which includes helping lenders get a clear picture of the borrower’s payment history and to make sure this is the right product for the borrower. It’s also an effort to curb loan churning.

Next steps for borrowers with high LTV mortgages

Folks who qualify for HARP should talk to their financial advisor or lender about the benefits and risks of refinancing their mortgage. If you’re unsure if you qualify for HARP, you can check your eligibility through their website here.

If you’re a homeowner who took out a mortgage after October 1, 2017 and owe more than your house is valued at, then you might qualify for the new Freddie or Fannie high LTV refinance option. Keep in mind, you must be up to date on your payments and the loan has to be at least 15 months old, so you would have to wait until the first of the year, at the soonest, to be eligible.

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