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HARP Loan Program Review – 2016

For beginners, the Home Affordable Refinance nProgram (HARP) was established in 2009.

This Federal program of the United States was established by the Federal Housing Finance Agency.

The main aim of this program is, to allow homeowners to refinance their loans into low mortgage interest rates, irrespective of the fact that the value of their property has reduced or the amount owed by the owner is much higher than the property’s present worth.

Put very simply, the HARP has been designed to suit the needs of underwater (the situation wherein the value of your home falls drastically) and almost underwater home purchasers, and assist them refinance their mortgages.

In such a situation, where the house owner find himself or herself deeply underwater, it is a herculean task to find a willing lender to help with refinancing.  This is where the HARP comes in.  While allowing the purchaser to refinance into a more viable mortgage option, the HARP does not include additional mortgage insurance.

The main objective of HARP is to bail out purchasers who have fewer defaults during the year preceding the refinancing.

So, put in a nutshell, a HARP mortgage refinance comes handy in the event that the purchaser or home owner’s property value falls to such a large extent that they can no longer avail of the traditional refinancing rules.


Want to dwell a bit into the history behind HARP?

The HARP came into being, to bail out home purchasers or owners with existing mortgage payments, but are unable to refinance, because of the fall in the value of their homes owing to the housing market correction in the United States.  This correction landed very many borrowers in troubled waters as prices of homes nose-dived.

Thousands of home buyers woke up to the harsh reality, that, the value of their homes had fallen much much below their residual mortgage.  As a spiralling effect, these individuals were not even eligible for the low interest rates by refinancing.

This mortifying scenario led to the birth of HARP.   HARP works on the basic principle that the value of the house that has been purchased is not a factor to be considered while looking at or approving a refinancing request.

While the HARP is a program established by the government, when it comes to the actual lending process, this is done by qualified or professional mortgage lenders.

HARP is applicable to home owners whose loan is approved either by Fannie Mae or Freddie Mac.

What are the Features of the HARP?

  • First andforemost, the homeowner seeking refinancing under HARP must be able to service the new payment that will be lower.
  • Ifthe individual wishes to refinance under HARP, his or her mortgage must be approved or backed by Fannie Mae or Freddie Mac.
  • Thereis no ceiling for the maximum loan to value (LTV), for owner’s wo wish to refinance to a fixed rate loan.
  • Forhome owners seeking to refinance to a flexible rate loan, the maximum loan to value (LTV) is capped at 105%.
  • HARP requires that the existing loan of the individual should be clean with absolutely no default in payments in the past one year.

 

Interested in a sneak peek into the HARP Guidelines?

It is no secret that home owners holding Fannie Mae or Freddie Mac approved loans or mortgages can seek redressal with regards to refinancing of their mortgages.

 

  • Earlier limited to not more than 125% of the existing property value, this ceiling has since been done away with.
  • The upfront fees for 15 and 20year fixed rate mortgages or loans stands waived.
  • Individual lender guidelines and schedules followed can vary.
  • The program stands extended up to December 31, 2016. If an individual takes up refinancing under HARP, he or she must have a mortgage note dated either on or before December 31, 2016.
  • Streamlining of the Appraisal process. In cases where the automated value can be found, no appraisal will be required.  This implies that Fannie Mae and/or Freddie Mac’s current use of the automation valuation model (AVM), which estimates properties is now being further streamlined.  Only in those instances where there is no trustworthy AVM value, a new appraisal is deemed necessary.
  • In the event that the individual’s current loan has private mortgage insurance, HARP will require the same amount of insurance coverage for refinancing.
  • HARP does not reduce the principle amount owed, but aims at assisting home owners avail of more stable and pocket friendly loans that can be serviced.
  • It is mandatory for every loan held or approved by Fannie Mae and Freddie Mac to participate in HARP. Other service providers are also being coaxed to take part.
  • HARP aims at aiding genuine homeowners who are worthy of credit and assistance and who promise to undertake paying off their loan, a chance to enter into a fresh or a new mortgage agreement with better and more friendly terms and conditions.
  • HARP works towards providing an almost instant reduction in loan repayment amounts, to home owners whose loan interest rates are higher than the present market rate. This reduction should be visibly lower, than what they were servicing earlier on.
  • At the time of handing in the application for refinancing under HARP, the lender gives the individual the statement that will include the fresh interest rate; the mortgage payment as well as the amount that has to be paid so far as the loan exists. The individual, can then compare this statement with his or her present or existing loan terms.  In case there is no visible decrease in the new amount, then of course the person need not go in for the option of refinance.

 

So, wondering if you are eligible for HARP?

The entire purpose of HARP is to assist individuals with existing loans, but are unable to refinance these with traditional banking institutions.  It has been created in such a way, so as to provide reprieve to people, owning homes with declined values and give them access to service a more unfluctuating loan.

For a person to be considered as eligible, he or she must mandatorily satisfy certain conditions.  Important among them being:

  • Primary factor here is the fact that the loan must be owned either by Freddie Mac or Fannie Mae. In case of any doubts pertaining to this condition, it is very simple and convenient to check on the same using the loan look-up tools.

While other loan providers are being cajoled to participate, this may take a while to be put into action.

  • The Loan is an existing one, with absolutely no late payments of more than thirty days in the last six months and a very limited default of either just one or no defaults in the past one year.
  • Another criterion for eligibility for HARP is that the person’s home is his or her primary residence or a 1-unit second home or a 1-to 4-unit property for investment.
  • The existing loan should have originated on or before May 31, 2009. To confirm on this requirement, again all that the individual needs to do, is check on the easy and convenient loan look-up tools.
  • Thepresent loan-to-value (LTV) ratio must exceed 80%.

 

Summarizing all of these, HARP can be considered to be a good option in the event of:

  • The property is the individual’s primary residence; second home or an investment property.

  • An exceedingly good payment history devoid of any defaults in the past twelve months.

  • The value of the property has decreased or fallen.

  • Not to forget, the present loan has to be mandatorily owned either by Fannie Mae or Freddie Mac.

  • The existing mortgage exceeds the current market value of the said property.

  • The existing loan should have been recorded on or before May 31, 2009.

  • The deadline for applying for refinance through HARP is extended up to December 31, 2016.

  • Ever since the launch of HARP in 2009, there have been important improvements in it. HARP now requires limited documentation with easier and convenient guidelines designed in such a manner so as to maximise approvals.

 

4 Am I eligible for HARPAnd what are the HARP rates like?

Almost instantly, most home owners are bound to get attracted to HARP like bees to a flower.  Especially after the U.S real estate market went through the correction phase.

But yes, there may always be doubts about whether this option to refinance is worth all the trouble at all.

According to reports from Freddie Mac, existing loans that were refinanced through the HARP program, went on to provide savings of an average of $125 to $150 a month on monthly mortgage payments.  Come to think of it, this figure does not really spell out very high benefits.  What also needs to be borne in mind is the huge closing costs.

However, in the case of bigger loans, people who availed of rates in the range of 6 percent to 8 percent are surely going to benefit from the HARP refinancing option.

HARP works on the premise that the rate will be bench marked on market rates, prevalent at the time of refinance and the home owner will have to bear any, or, all of the related points and fees asked by the lender.

Interest rates can vary among different lenders, and over time, the market rates may adjust.  HARP also offers to refinance existing loans with no prepayment penalties or balloon payments.

So, basically if a person is underwater, he or she will be able to refinance through HARP, to the present mortgage rates, without having to pay down payment or mortgage insurance.

Why don’t we weigh the pros and cons of HARP?

In the event of your home losing considerable value since the time brought it, you can opt to go in for refinancing through HARP.  It can be confidently said, that HARP has provided benefits to many home owners.  But the other aspect is that, HARP does seem to be effectively advantageous for some home owners and not everybody.

Probably, you could have a run through over the pros and cons of HARP, before you decide to opt for it:

PROS

CONS

The appraisal value of the house is automatically calculated.  No appraisal costs or home visits by on-site appraisers. In case of mortgage insurance, you may be force to refinance with the present lender, irrespective of whether you may wish to have a change of lender.
A good credit score implies great terms which includes refinancing at no extra cost and at the lowest available interest rate irrespective of how devalued your property has got.  There will also be no closing costs or any other service fees. In the event of a not so clean credit history, you may have to avail of not so great terms.

 

So, in effect it may be said that refinancing through HARP does not negatively affect your credit score.  Refinancing through HARP does not mean that you stand to be penalized for making payments, that are lower.  A refinancing through HARP is similar to any other kind of loan refinance.

But nevertheless, it is pertinent for you to research on the benefits or otherwise, of refinancing your existing loan.  Even if you choose to refinance through HARP, research is vital.  While HARP does offer significantly smaller monthly out-goings as well as sound annual savings, make your decision, only after carefully going over the terms and conditions, the eligibility criteria, the rates that you will be offered etc.

Ever since its inception, HARP has seen major modifications that have only provided for more improvements.  Apart from the loan-to-value cap being removed and waiver of property appraisal requirements, certain kinds of risk fees and warranties have also been waived.  The eligibility date has also been changed to the date on the note, thereby increasing the accessibility of HARP.

Harp enables you to avail of lower interest rates, a smaller loan term, or to shift from a flexible to a fixed rate loan.  There is also no emphasis on a minimum credit score.

With the guidelines for HARP being made increasingly simpler and easy, individuals who were refused earlier on, now stand a good chance for opting for refinancing through HARP.

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