The federal government announced changes to the Home Affordable Refinance Program (HARP) on Monday, hoping to allow more homeowners who are underwater on their mortgages to qualify for the program, and by re-financing and potentially reducing their monthly payments, making it easier for them to make their payments and assisting with possible cash flow problems.
The program, originally started in 2009, was supposed to help upwards of 5 to 10 million homeowners who are upside down on their mortgages refinance and take advantage of lower interest rates that are being offered for mortgages these days. This would allow them to continue paying and stay current on their mortgage while freeing up some desperately needed cash for many homeowners who are struggling in today’s economy.
The changes announced on Monday are supposed to allow some homeowners who are currently ineligible for the existing HARP program to qualify- it includes the reduction of some of the fees associated with the program, as well as an elimination of the loan to value (LTV) restrictions previously in place as part of the HARP program.
What was/will be changed in the HARP program?
- A cap which limited those who qualified to those who owed no more than 125% of the value of their home will be lifted.
- Some fees for closing, title insurance, and other costs will be eliminated, lowering the amount of fees and expenses those hoping to qualify for the program will have to pay.
How do you know if you qualify for HARP?
- Your mortgage must be owned or guaranteed by Fannie Mae or Freddie Mac, and must have been sold to one of those agencies on or before May 31, 2009.
- Loan To Value Ratio (LTV) must be greater than 80%- i.e., your mortgage must be at least 80% of the value of your home, and, as mentioned above, there is no longer an upper limit of 125% LTV.
- Mortgages that were refinanced over the last two and a half years aren’t eligible.
- Homeowners must also be current on their mortgage. One late payment within six months, or more than one in the last year would mean disqualification.
Will This Help Many Homeowners?
It certainly will let some who currently do not qualify become qualified for the program so it will help, but how many is probably anyone’s guess at this point. Keep in mind, also, that this is a voluntary program for banks & lenders, so there is nothing that forces a bank to allow a homeowner to refinance, even if all of the conditions above are met.
As you can see from the requirement that only one late payment in 6 months is allowed in order to qualify, this program is still geared towards homeowners who are currently able to keep up with their mortgages and continue to make payments, even if they are underwater or “upside down” on their current mortgages.
By refinancing at a lower interest rate, homeowners will be able to reduce their monthly payment which in effect reduces the total amount they will pay over the life of the loan as well. Obviously, for someone underwater on their mortgage, the longer they plan on staying in the house, the better off they are, as over time the house will likely increase in value (although no one knows at this point how fast or slowly that will occur), and as they make payments over the years their remaining mortgage debt amount gets less and less, both of which increase the equity they have in the house vs. what the original purchase price was.
Hopefully, this will allow some of those people who are “hanging on” so to speak a little relief, which is definitely a good thing.
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