If interest rates drop too low, property owners may want to refinance the mortgage to secure lower interest rates, thus reducing the monthly payment or, in some occasions to accumulate money quickly. In these cases, some people cannot refinance the debt because they have negative equity. This means they owe more on the mortgage than the house is currently worth.
This group of people is known as “underwater” because they are submerged in more debt than they can cover. For these cases, the loan program known by its acronym Harp was created in 2009. Thanks to this financing plan, those affected can apply for it to reduce interest rates.
What is the Harp program?
The Home Affordable Refinance Program, better known as Harp, is a plan designed to help homeowners refinance their underwater mortgage loans. Financing is considered “underwater” or “upside down” when the debt is greater than the current cost of the property.
The plan was created and implemented by the Federal Housing Finance Agency. The program emerged in 2009 as a response to the 2007-2008 financial crisis in the United States. It is aimed at those with a loan-to-value ratio of over 80%.
Since the plan’s creation, fortunately, property value has progressively increased. This reduced the number of underwater homeowners; now, most homeowners are eligible for traditional refinancing.
Having weathered the economic downturn, the Home Affordable Refinance Program expired in December 2018. In other words, the Harp program in 2022 is currently non-existent.
Can you refinance after Harp?
Although the government initiative ended, a small group of Americans are at risk of being “underwater” and need help to keep paying their mortgage. Even though the Home Affordable Refinance Program ended, it created alternatives you can turn to.
Since 2019, new programs have been founded to subsidize homeowners’ refinance funds. Among the most important, you can find the following assistance plans:
- Freddie Mac Enhanced Relief Refinance (FMERR)
- Fannie Mae High HIRO Program
- Streamline Refinance for FHA, VA, and USDA loans
The more property values increase, the less there is a need to opt for these replacement plans. Although it may not seem like it, the rising cost of housing benefits homeowners in every way, even those who don’t want to sell. If the value of your home has increased, you may have the funds to refinance.
If you’re still paying an above-market mortgage rate, find out if you qualify for traditional refinancing or with the help of these new programs.
Freddie Mac Enhanced Relief Refinance (FMERR)
The Freddie Mac Enhanced Relief Refinance (FMERR) is an enhanced relief plan. It was created for homeowners currently underwater on loans owned by Freddie Mac. Using this plan allows you to enjoy a lower or faster monthly payment without considering your credit score as a requirement.
The first aspect to consider is that your current mortgage must be from Freddie Mac to qualify for the assistance program. This credit is granted to homeowners with a loan-to-value gap exceeding the company’s minimum LTV limit of 97.01%.
Consider these requirements:
- It has been 15 months since you received the mortgage
- You have not fallen behind on your mortgage payment in the last six months
- You have had no more than one late mortgage payment in the previous year
- You do not carry over more than $5,000 in costs at the end of the loan and receive a maximum $250 cash refund
The FMERR program is open to second homeowners, investment holders, and owner-occupied homes. They can use it to refinance a property with one, two, three, or four units. It is important to note that you are not eligible if Harp has already refinanced your current loan.
Steps to apply for mortgage assistance
Here are the four steps in Harp’s replacement plan to complete the application:
- Make sure your current mortgage is from Fannie Mae or Freddie Mac
- Find out what refinancing terms your lender has. Some of them often offer competitive offers to keep the customer
- If you didn’t find a lender with competitive offers, look for one that gives Harp replacement
- Complete the loan application and follow the official loan instructions
Fannie Mae High HIRO Program
Fannie Mae’s program allows low-income homeowners to refinance their debt. The debt must have an LTV ratio of up to 95%, no minimum credit score, and the borrower must have a debt-to-income ratio of 65%.
As with the previous condition, to refinance a Fannie Mae High HIRO Program loan, the current mortgage must be from Fannie Mae. The basic requirements for this company are very similar to the above:
- The loan must have originated in October 2017
- You need to have 15 months on the current mortgage to apply for assistance
- You can’t have missed payments within the last six months
- You can’t be behind on payments in the previous year
The company requires holders to have a minimum LVT ratio of 97.01% for a single-family residence. But there is another refinance option of a minimum LTV of 75.01% for two- to four-unit properties.
Advantages of Refinance Programs
If you live in the United States with negative equity, applying for help from a Harp replacement program has these benefits:
- You can use them more than once. The initial program gave one chance for help, while the new programs can frequently refinance if you qualify.
- Your mortgage insurance carries over to the new refinance. If you pay 20% of your mortgage, you are probably paying private insurance now, you don’t need new insurance because it is carried over into the new agreement
- If you don’t pay PMI now, you don’t have to pay PMI on the new loan
- The process does not require as many financial documents
- You are eligible for a low credit score with a high debt ratio
- Based on the location of your home and the lender’s findings, you do not need an appraisal waiver
- You are eligible with significant financial and credit problems, even if they’re recent
If you have any doubts, talk to your current lender or the company that financed your existing loan before making a decision.