HARP is a special Government Endorsed Refinance Program for conventional loans that was updated in early 2012 to help homeowners with little or no equity refinance their mortgage and take advantage of historically low rates by removing many of the traditional loan qualifying barriers, such as appraisal values, mortgage insurance, second lien holders and interest rate fee penalties.
Referred to as HARP, DU Refi Plus or the Obama Refinance Plan, the Home Affordable Refinance Program is a federal program of the United States that was originally set up by the Federal Housing Finance Agency (FHFA) in March 2009 under President Obama’s Making Home Affordable Program to help underwater and near-underwater homeowners refinance their mortgages.
Several key changes were made to the Home Affordable Refinance Program, which are already having a positive impact on Pittsburgh homeowners who are averaging $250 – $300 monthly savings on their mortgage payment by refinancing into a lower rate.
Major Changes To The PA HARP Program
Explanation Of How The New HARP Program Will Help Pittsburgh Homeowners
Duration : 0:4:35 — Oct. 24 (Bloomberg) — U.S. HUD Secretary Shaun Donovan talks about changes to the Home Affordable Refinance Program, or HARP, that will allow homeowners to refinance regardless of how much their houses have dropped in value. Donovan speaks with Lisa Murphy on Bloomberg Television’s “Street Smart.” (Source: Bloomberg)
In the video above, HUD Secretary Shaun Donovan explains that Fannie Mae and Freddie Mac have about 4 million borrowers who are underwater and could benefit from HARP with an average savings of $2,500 a year or more.
The HARP program also helps the borrowers who do have equity in the same way with lower costs and a more streamlined process.
Fannie Mae and Freddie Mac have 6-7 million loans that fit the “near negative equity” criteria, and removing the road blocks many of these homeowners have faced in the past will make it easier for millions of people to save money on their monthly mortgage payments, as well as refinance into a more stable loan.
The following five key barriers were removed in order to reach more underwater homeowners:
1) Loan-to-Value (LTV) Limits Eliminated:
Because of market barriers before, people who had more than 25% negative equity couldn’t qualify.
One of the most significant changes that was made was removing the LTV restrictions so that all eligible homeowners, regardless of how much their home is worth, could qualify.
There are many people inPittsburgh who purchased a home before June 2009 that have seen their property’s value lose 50-100% equity, yet they have been responsible and continued to make their mortgage payments on time. These are the people this borrowers the HARP Program is intended to help.
2) Reduced Fees And Rate Costs:
There is a cap on the amount of fees and rate increases that a bank can charge a borrower, also known as Loan Limit Price Adjustments (LLPA).
With lower interest rates and closing costs, borrowers can actually see a true advantage in reducing their interest rates.
These caps also help mortgage professionals place their clients into more stable programs, which is good for the real estate market as a whole due to the fact that it reduces the amount of potential foreclosures by helping homeowners save hundreds of dollars a month on their mortgage payments.
While there are small adjustments to the HARP Rates for each scenario based on credit or Loan-to-Value, for example, the purpose of this program is to give responsible homeowners the opportunity to take advantage of the lowest mortgage rates in history.
3) Appraisal Waivers:
Fannie Mae and Freddie Mac have their own automated property valuation systems, which will remove the need for an appraisal in the majority of cases.
Lender’s appraisal requirements continue to change and evolve as the submission guidelines are updated.
See our HARP Frequently Asked Questions page for more details and explanations.
4) Transferring Mortgage Insurance:
“An operational complexity” that has previously stood in the way of allowing many people to refinance.
Whether you have Lender Paid Mortgage Insurance (LPMI) or Borrower Paid Mortgage Insurance (BPMI), the mortgage insurance companies are working hard to make it as seamless as a process as possible since it benefits them to help borrowers obtain a more affordable mortgage payment.
5) Subordination Agreements On Second Mortgages:
Second Lien Holders are also actively participating in this the HARP program by complying with subordination requests.
While there may be a small processing fee charged by second mortgage providers, the subordination requests can be automatically transferred to the new lender.
Background Of The HARP Loan Program
Under the authority granted to Treasury in the Emergency Economic Stabilization Act, the Obama administration launched Making Home Affordable Program (MHA)to help responsible homeowners avoid foreclosure.
The Home Affordable Refinance Program, also known as HARP, is a federal program of the United States, set up by the Federal Housing Finance Agency in March 2009 under President Obama’s Making Home Affordable Program to help underwater and near-underwater homeowners refinance their mortgages.
Different than the Home Affordable Modification Program (HAMP), which is designed to assist homeowners who are in danger of foreclosure, the HARP program focuses on helping homeowners who are current on their monthly mortgage payments but are unable to refinance due to dropping home prices in the wake of the U.S. housing market correction.
When the U.S. real estate housing bubble popped in late 2006, thousands of Pittsburgh homeowners drastically lost equity in their properties as the inventory of homes for sale significantly increased.
Homeowners watched the equity in their homes drop, which prevented them from refinancing into lower interest rates due to their higher Loan-to-Value (LTV) and private mortgage insurance (PMI) requirements.
For example, a home that was purchased for $250,000 in 2006 may be worth $130,000 today. If the loan on that property is now $200,000, the new LTV would be 153% (owing 53% more than the value of the home). This would disqualify the borrower from traditional mortgage programs and mortgage insurance restrictions.
The original HARP program intended to expand conventional refinance mortgage options to borrowers who had an LTV greater than 80% and less than 125%.
Unfortunately, these changes did not reach the millions of homeowners the program intended to help due to limited participation by banks, lenders and mortgage insurance companies.
According to a Jan 2012 FHFA Report, Fannie Mae and Freddie Mac have refinanced nearly 1.1 million loans through the HARP program since inception, but only 100,382 mortgages had an LTV between 105% and 125%.
In an October 2011 hearing before the House Committee on Financial Services Subcommittee on Insurance, Housing and Community Opportunity, Darius Kingsley, the Deputy Chief of the Homeownership Preservation Office, addressed the main issue:
While that model may have been sufficient for the industry during times of economic growth and house-price appreciation, it became inadequate in 2007, when the industry experienced rapidly rising defaults and declining home prices.
In addition, there was no standard approach among loan servicers or investors about how to respond to responsible homeowners who wanted to continue making payments, but were in need of mortgage assistance. Most solutions offered by servicers before the crisis simply sought to add unpaid interest and fees to the mortgage balance. These options often resulted in higher, not lower, payments for homeowners.
The Making Home Affordable Program (MHA) has helped over 5 million homeowners, as outlined HERE and updated HERE, through a combined effort of modifications, short sale initiatives and other foreclosure prevention programs.
However, responsible borrowers who have continued to make their mortgage payments on time, even though their LTV ratios exceeded 125%, have not been specifically addressed in any of the housing recovery programs.
A New Focus:
Written Testimony of Secretary Shaun Donovan
Hearing before the Senate Committee
on Banking Housing and Urban Affairs
State of the Housing Market:
Removing Barriers to Economic Recovery, Part II
Tuesday, February 28, 2012
HUD Secretary, Shaun Donovan, clearly articulated the need for HARP and helping responsible homeowners who are underwater on their mortgage refinance into a lower rate.
CLICK HERE for full written testimony.
Relief for Responsible Homeowners, Keeping People in Their Homes
First and foremost, we needed to ramp up our efforts to keep people in their homes and provide relief for homeowners who have done the responsible thing time every month when that mortgage bill arrives in their mailbox.
Mr. Chairman, millions of responsible homeowners who are current on their mortgages and could benefit from today’s low interest rates face substantial barriers to refinancing through no fault of their own. Sometimes homeowners with good credit and clean payment histories are rejected because their mortgages are underwater.
In the end, these responsible homeowners are stuck paying higher interest rates, costing them thousands of dollars a year.
Indeed, as economist Mark Zandi said, There is no better way to quickly buoy hard-pressed homeowners than helping them take advantage of the currently record low fixed mortgage rates and significantly reduce their monthly mortgage payments.
This Means That…
We need to reward the thousands of homeowners who are paying their mortgages on time and not strategically defaulting or simply walking away from their properties because they lost equity.
Refinance Assistance for Borrowers with GSE Loans HARP 2.0
In his jobs speech to Congress last September, President Obama charged HUD and Treasury to work with the Federal Housing Finance Agency to lower barriers to refinancing.
Following weeks of intensive discussions with lenders, mortgage insurers, regulators and investors, FHFA announced changes to help borrowers whose loans were purchased or guaranteed by Fannie Mae or Freddie Mac and who are located in areas suffering from house price declines.
With the Administration’s Home Affordable Refinancing Program previously limiting refinancing to borrowers with high loan-to-value ratios (LTVs) of 125% and responsible for less than a million refinances, the need to pick up the pace was clear.
This Means That…
Expanding the limit of 125% LTV will help more Pittsburgh homeowners by allowing them to refinance into lower rates.
Announced in October 2011, HARP 2.0 eliminates the LTV ceiling, reduces certain risk-based loan-level guarantee fees (also referred to as loan level pricing adjustments, or LLPAs), extends the program’s end date to December 2013, streamlines automated valuation model (AVM) coverage and foregoes appraisal requirement when AVM is available, and provides representations and warranties relief.
This Means That…
More Pittsburgh lenders will feel comfortable participating in this new HARP program.
Eliminating the LTV cap will allow those GSE borrowers who have been responsible in paying their mortgage, but happen to be deeply underwater, the opportunity to take advantage of unprecedented mortgage interest rates. The extension of the program for two years will allow lenders to hire staff and upgrade systems to assure all eligible borrowers will have the opportunity to take advantage of the HARP program.
This Means That…
Changes to the new HARP program will create more opportunities for Pittsburgh job creation within the mortgage industry as lenders ramp up underwriting and processing staffs to accommodate the potential flood of new applications from qualified borrowers.
It will minimize the amount of funds borrowers would be required to obtain for a refinance because the GSEs reduce the fees that borrowers have to pay on 30-year fixed rate loans with an LTV over 80% from 2% to .75% of the loan amount. And by ensuring that the GSEs do not require the HARP originator to take responsibility for the quality of the loan that is being refinanced, it will expand the universe of responsible borrowers to whom they offer the refinancing option.
This Means That…
Borrowers will pay lower interest rates and closing costs for Pittsburgh HARP Loans.
In addition to these changes, the Administration continues to work with FHFA on ways to increase uptake. Specifically, the Administration is evaluating automated valuation models as approval alternatives to manual appraisals, removing operational barriers that preclude or hinder cross-servicer refinances, and seeking to extend HARP 2.0 to those borrowers with LTVs under 80% so that more responsible, current homeowners have the opportunity to refinance.
We expect most lenders will have their HARP 2.0 operations fully up and running by the end of March. These changes have met with a very positive response from homeowners. Already, according to an informal survey almost 300,000 families have filed applications for refinancing and stand to save on average $2,500 per year, the equivalent of a pretty good-sized tax cut, speeding our efforts to help responsible families stay in their homes and start to rebuild the wealth they lost in the economic crisis.