If you owe more than your home is worth and haven’t been able to refinance because you don’t qualify for HARP (Home Affordable Refinance Program), there may be some good news for you in the near future. A new version of the HARP program, dubbed “HARP 3.0”, may be rolled out in the coming months. An key feature of the new program may be the elimination of a restriction that has prevented many underwater homeowners from taking advantage of today’s super low interest rates.
What is HARP?
The HARP refinance program was designed to allow homeowners with negative equity to refinance with today’s low interest rates. A “normal” refinance loan usually requires at least a little equity, but because home values have fallen so much over recent years, many homeowners were locked into high rates and risky loans. The HARP program was designed to allow homeowners to refinance into more stable, lower-rate loans even if they owed more than their home is worth.
The HARP program has the following basic eligibility criteria:
- A clean mortgage payment history for the last 12 months.
- Your loan must be owned by Fannie Mae or Freddie Mac. Note that you can be writing your mortgage payment to a Citibank, Wells Fargo, or B of A, but still have a loan owned by Fannie or Freddie. You can check if Fannie or Freddie owns your loan here and here.
- Your loan must have been originated before June 2009
If you meet these eligibility criteria, you can potentially refinance into a new 30-year, 20-year, or 15-year fixed loan at prevailing rates under the HARP program – even if you owe more than your home is worth.
HARP 3.0 to Expand Borrower Eligibility?
The key limitation that has prevented many homeowners from taking advantage of HARP has been the Fannie/Freddie ownership requirement. If you meet all other criteria, but your loan isn’t owned by Fannie or Freddie, currently you’re out of luck and can’t refinance under HARP.
HARP 2.0 is slated to expire at the end of 2013 and expectations are that it will be replaced with HARP 3.0, which opens up the ability to refinance to a whole new set of homeowners, says Les Kramsky, executive vice president and general counsel to Silk Abstract Company, a title insurance agency and a real estate attorney in New Jersey. The main purpose of HARP 3.0 is to address mortgages that are not backed by Fannie and Freddie and for those people that have loans over $417,000, he says. “It would be a big deal for people with jumbo loans. With HARP 2.0 they can’t qualify for a refinance.”
Similar to HARP 2.0 requirements, in order to qualify for the program consumers need to have been on time with mortgage payments for the last six months and have only been late once in the past 12 months. They also have to have less than 20% equity in the home. Since there isn’t a clear date as to when HARP 3.0 will pass, Kramsky says homeowners with Fannie and Freddie backed loans should try to refinance now but for those with jumbo loans or ones not backed by Fannie or Freddie they should sit tight until HARP 3.0.
“HARP 3.0 will open the door to a lot of opportunity for homeowners,” says Kramsky. “This will be very big for homeowners. There will be fewer foreclosures and people will have more money in their pocket which will stimulate the economy. HARP 3.0 is a win win for everyone.”
I believe low interest rates will be with us for a while longer, so if HARP 3.0 comes to fruition and the Fannie/Freddie ownership restriction is removed, it will represent a tremendous opportunity for underwater homeowners who haven’t yet been able to take advantage of the HARP program. If this is you, stay tuned!