How Successful is the HARP Government Mortgage Refinance Program?

H.A.R.P. Government Mortgage Refinance Program

It’s been nearly four years since the original version of the Home Affordable Refinance Program (HARP) was announced by the White House and the Federal Housing Finance Agency (FHFA). HARP is part of an Obama administration initiative to bring stability to the U.S. housing market by helping homeowners avoid foreclosure. HARP started in the first quarter of 2009, and since then it has been extended and enhanced into the current version known as HARP 2.0.

HARP is one component of the larger plan of action devised by the Government to encourage borrowers to continue payments and avoid foreclosure even though their mortgage was “underwater”. The initial version of the program aimed to help homeowners whose property values plummeted as a result of the collapse of the real estate and mortgage markets. As the values of the homes fell faster than the mortgages were repaid soon the amount owed was more than the house was worth (i.e. “underwater”) and at that point borrowers were unable to refinance because their loan-to-value (LTV) ratios were outside lending parameters. Since banks typically won’t loan to homeowners if the LTV ratio is too high the H.A.R.P. Government Mortgage Refinance Program is the only way for these borrowers to refinance at lower interest rates.

The First Round of HARP

government mortgage refinance programWith HARP, borrowers whose mortgages were guaranteed by the troubled Fannie Mae and Freddie Mac government-sponsored mortgage investment firms could refinance even if the LTV of their homes was 105 percent. The LTV limit was increased to 125 percent a few months later. The initial wave of HARP applications fell short of government projections, however, due to the complexity of the program and the fact that home price across the nation kept falling.

According to many critics, HARP has failed to have much effect because by the second quarter of 2012 only about 1.2 million borrowers had been able to refinance under the program. The qualifying criteria of HARP only allows borrowers to apply if they have not missed their monthly mortgage payments. The government created and sponsored other programs to bring relief to delinquent borrowers, but the contractual nature of mortgage loans makes it difficult to help these homeowners.

The HARP 2.0 Expansion

In an effort to reach more underwater homeowners, the government keeps raising the limits some of HARP. As it stands now, even borrowers whose LTV ratios are at 200 percent can apply.  If their current mortgage lender does not help to move the HARP process along, they can shop around for another bank or broker. HARP now applies to second homes and rental properties as well.  [Editor’s note: But who in their right mind would refinance a home for twice what it is worth? If you are that far underwater most borrowers choose to mail the keys to the bank, rent for a few years and buy another house for much less. Some borrowers simply let the banks forclose and then rent from the new owner.]

HARP Mortgages

HARP 2.0 even lets mortgage lenders off the hook should fraud be detected in the original loan. The refinancing entity does not inherit the problematic loan, in this sense HARP makes troubles go away. Another advantage of the program is that it does not require private mortgage insurance (PMI). which means that Fannie and Freddie assume most of the risk. But borrowers need to be current on the mortgage, have a credit score above 620 and be able to prove income and assets sufficient to qualify for the loan.

As mortgage refinance levels climbed in late 2012, plans to expand the program into HARP 3.0 are already being discussed on Capitol Hill. Research from real estate analytics firm CoreLogic shows that of all the underwater borrowers in the United States in late 2012, a little over 25 percent were delinquent on their mortgage . This means that there is still hope for millions of Americans to avoid foreclosure and lower their monthly payments. In the end, HARP may have fallen short of its goal, but the government continues to hope.

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This piece was contributed by Travis Leary, a freelance writer on politics, real estate, finance and current events; be sure to check the latest on real estate seo courtesy of Todd Mumford.

Image courtesy of David Castillo /

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