How HARP 2 can help Refinance upside-down Mortgages
While the public is growing tired of useless government-sponsored programs that promise relief but fail to deliver, the new Home Affordable Refinance Program (HARP 2) may change their minds. The original HARP had a variety of problems that were not ironed out before release, resulting in a program used by few that helped even fewer. HARP 2, however, has had most of its predecessor’s problems removed, and is geared to help the nation’s underwater homeowners refinance their mortgages.
The Past Problems
The biggest problem with the original HARP is that the requirements to qualify for the program were so strict that the demographic it sought to help were almost entirely void from even applying.
When the housing market collapsed in 2008, real estate across the nation declined in value. Millions upon millions of homes lost so much value that their appraised values fell below the amount still owed on the mortgage loans backing them. This trend of increasing loan-to-value (LTV) ratios began to haunt the everyday American family, and the negative equity epidemic swept across the nation with unstoppable force.
To combat these high LTVs, the government threw together the original HARP and made it available to the public. They were surprised, however, to see how ineffective it was. After taking a step back to analyze what exactly was wrong with it, they found the problem: to qualify for HARP, homeowners needed an LTV of 125 percent or less. That means their mortgages could not be more than 25 percent higher than the appraised value of their property. The LTV requirement essentially blocked everybody who needed a refinance loan, while allowing only those who had little to no need for a refinance to make use of the program.
HARP was a failure, and the government made a fool of itself.
Introducing the New and Improved HARP 2
But as the famous saying goes, “When you fall down, get back up,” and our policymakers did exactly that. Keeping true to the original intent of HARP, they poured over the requirements for the program and recently released HARP 2—which is essentially just a less strict version of its predecessor.
Policymakers saw how bad the negative equity storm was and decided not to even bother with raising the LTV requirement—they just removed it all together. HARP 2 has had the LTV requirement completely abolished for fixed-rate mortgages, which now allows homeowners in even the most dire of circumstances to apply for a HARP 2 refinance.
There are still other HARP 2 requirements. Homeowners must have:
- A mortgage that that was taken out before May 2009
- A Freddie Mac or Fannie Mae owned or guaranteed mortgage
- An LTV of greater than 80 percent
- Been making on time payments, with no late payment occurring in the past six months, and no more than a single late payment in the past 12 months.
Those with adjustable-rate mortgages still must adhere to an LTV ceiling of 105 percent in order to be eligible.
While these requirements disqualify homeowners whose mortgages are not backed by Freddie or Fannie, they have opened the door to hundreds of thousands of other homeowners who need help with high monthly bills.
Contact your lender to discuss whether your particular mortgage qualifies for a HARP 2 refinance.
