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HARP Program

Mandi Feely has been in the Mortgage industry for over 20 years. Her insight into how the industry has changed, and how it operates will provide you with the best service of any home loan originator in Idaho. Take a moment ask her for advice. 

 

 

 


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How the Home Affordable Refinance Program (HARP) Helps Boise Idaho Homeowners

The four year period from 2001 to 2005 represents a time when the United States economy was thriving. In 1999, President Bill Clinton appointed Andrew Cuomo as the new HUD (Housing and Urban Development) secretary, leading to an additional $2.4 trillion dollars available in mortgages for affordable housing. This new financing and funding was meant to deliver the American Dream of homeownership to anyone who wanted to own a home. By 2001, almost 28 million families who previously were unqualified for a mortgage loan had secured funding under this program and moved their families into their own little piece of the American Dream. The result was a significant increase in the number of mortgages along with skyrocketing property values.

The addition of the $2.4 trillion dollars allotted for mortgage loans led to some creative financing practices by many lenders in order to qualify more buyers for a mortgage, and this is inevitably what led to the bursting of the housing bubble in early 2006. During the economic crisis, many buyers who qualified for a mortgage loan due to creative lending practices found their property values quickly dropping, many lost their jobs, and the economy stalled which led to record numbers of loans in default. Other home owners quickly discovered that their loan amount was now higher than the value of their homes.

Many of the borrowers who were the most affected by the bursting of the housing bubble were individuals who secured adjustable rate mortgages, or ARM loans. The idea at that time was that borrowers could secure financing for a home at an introductory low interest rate which made payments affordable for borrowers who might not otherwise meet the income qualifications for a typical mortgage loan. With the economy still growing, the future of the housing market looked positive with home values projected to increase exponentially. This would allow borrowers to utilize the equity in their homes to refinance for a fixed interest rate at a later date. Unfortunately, when the housing bubble burst, home values tanked very quickly. This left borrowers unable to use the equity in their homes to refinance, and many borrowers faced a huge increase in their monthly mortgage payments when ARM kicked in.

Once the bottom fell out of the housing market, government agencies as well as lenders began devising ways to allow borrowers to keep their homes by making them more affordable. Some programs were designed to help reduce the principal of the entire loan amount as a result of declining home values. Others, such as HARP, were designed to help borrowers refinance by reducing interest rates or shifting borrowers to a different type of loan product with a lower fixed interest rate even if the property values were lower than the amount owed on the mortgage.

The Home Affordable Refinance Program:

The Home Affordable Refinance Program, or HARP, is a government implemented program instituted in 2009 as a means of helping homeowners keep their homes and avoid foreclosure. Under the program, approved lenders are given incentives to provide refinancing to qualified homeowners who are looking to reduce their monthly mortgage payments. As a result, HARP has helped 2.5 million homeowners to make their monthly mortgage payments more manageable. The guidelines set in place by the program require borrowers to be in good standing and have a good payment history with their current mortgage loan. As a result, borrowers who find their property values lower than the amount of their loan are able to reduce their interest rates and lower their monthly mortgage payments.

Only a limited number of homeowners have qualified for HARP. Between June 1, 2009 and July 2013, approximately 2.5 million borrowers have refinanced under the program. While it has given responsible borrowers relief from large monthly payments, as of today there are still an estimated 7.9 million borrowers who are currently under water in their current mortgage loans. Borrowers can inquire with their current lender to see if the program is offered or check with other lenders for the refinancing program.

How to Qualify For Harp:

Only certain types of loans are eligible to be considered for the Home Affordable Refinance Program. As of today, Fannie Mae and Freddie Mac backed loans are the only two types of loans which may be considered for HARP. Other additional qualifications include:

  1. The mortgage must have been sold to Fannie Mae or Freddie Mac on or before May 31, 2009. Since this date, other laws and programs have been enacted, eliminating many of the practices which led to the housing crisis in the first place. For borrowers whose loans originated after May 31, 2009, there are other programs in place to assist them in refinancing.
  2. Unless it is a Fannie Mae loan which had been previously refinanced under HARP in the time frame from March through May of 2009, a homeowner cannot qualify if the loan has ever been previously refinanced under HARP.
  3. The current loan to value must be greater than 80%. If the value of the home is currently more than 20% less than the loan amount, borrowers are ineligible for HARP.
  4. Borrowers must be current on their loan payments and have a good payment history for the previous 12 months.
  5. The borrower must benefit from the refinance either through lower monthly mortgage payments that are sustainable, or by transitioning from an adjustable rate mortgage to a fixed rate mortgage.

HARP Fees and Costs:

There are always costs to refinancing a loan, and refinancing under HARP is no exception. The costs of refinancing under HARP vary from lender to lender, but costs can include application fees, processing fees, appraisal, title search, and other typical closing costs including legal fees. In some cases, the refinancing fees can be tacked onto the current mortgage balance. However, some borrowers will not qualify for refinancing with this option as it can affect the loan to value amount and make certain applicants ineligible. Some borrowers benefit more than others by refinancing under HARP, particularly when considering some of the fees and costs associated with refinancing. For example, a borrower with a loan worth $125,000 with a 6.5% interest rate can expect to save $90.13 per month on their mortgage payments, and the average closing costs for the refinance cost around $3,200. In this case, it will take the borrower close to three years to make up the difference of the closing costs for the refinance. However, a mortgage loan of $375,000 with the same interest rate will save around $270 per month. While the closing costs are typically a few hundred dollars higher for a larger loan, the borrower will make up the difference in a little over a year. Borrowers with larger loan amounts benefit the most from refinancing under HARP.

HARP Application Process:

Upon determining if a loan is either owned by Freddie Mac or Fannie Mae, as well as determining if the loan origination date is prior to May 31, 2009, borrowers can begin the HARP application process. The application is no different than a standard Fannie Mae loan application form. Borrowers who have a hardship typically cannot qualify for refinancing through HARP, as it is designed for borrowers who don’t qualify for a loan modification due to hardship. Borrowers should first contact their primary lenders to see if their lender offers refinancing through HARP. Fannie Mae and Freddie Mac will also provide a list of HARP approved lenders.

Differences among HARP, HAMP, and Short Sale:

For borrowers who are "under water" in their current mortgages, HARP is a good option. Although it isn’t a new loan, and there is no forgiveness of principal, it can reduce interest rates and thereby lower monthly mortgage payments for certain borrowers. It is only an option for borrowers who have maintained a good credit history and who have a good payment history in the past 12 months on their mortgage loans. Borrowers who have missed mortgage payments or who are suffering from a hardship can sometimes qualify for the Home Affordable Modification Program (HAMP). This program is designed to help borrowers who are in immediate danger of defaulting on their home loans. It is not a refinance program, but instead allows borrowers to amortize some of their loan, as well as forgive some of the principal, and is good for a term of up to 60 months. For borrowers who don’t qualify for HARP or HAMP, a short sale is often the last alternative. A short sale allows borrowers to sell their homes for current market value while forgiving some of the principal and is subject to the lender's approval.

Summary:

The Home Affordable Refinance Program, or HARP, is a program allowing borrowers to refinance their homes for lower interest rates. Borrowers’ mortgage loans must be owned by Fannie Mae or Freddie Mac, and had to originate prior to May 31, 2009. The program is designed to allow borrowers who are not facing an immediate hardship to make their monthly mortgage payments more manageable through refinancing. Interested borrowers who meet the HARP qualifications can contact approved lenders and complete an application form in order to determine eligibility. Choosing to refinance through HARP will not allow borrowers to pay off a second mortgage or give them cash as a form of equity, however it does allow borrowers who have a mortgage that is higher than the value of their home to have a fixed interest rate and lower monthly mortgage payments.

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