In an effort to reach more U.S. homeowners, the government revamped and relaunched its Home Affordable Refinance Program (HARP) October 24, 2011 — one year ago last week. By all accounts, “HARP 2.0” has been a success.
More than 1,000,000 underwater homeowners will use the reformulated HARP program this year — a pace that’s nearly three times what HARP did on its initial release.
Meanwhile, with mortgage rates at all-time lows, the timing of HARP 2 could not better. HARP-using households are making huge savings.
HARP 2 : The “Underwater Mortgage” Refinance
The Home Affordable Refinance Program was first created as part of the government’s Making Home Affordable program. It was February 2009 and the U.S. economy was less than 6 months removed from the collapse of Lehman Brothers, the fall of Merrill Lynch, and the movement of Fannie Mae and Freddie Mac into conservatorship.
As part of a broader plan to stabilize housing, HARP was born.
Much like the successful FHA Streamline Refinance available to FHA-insured homeowners; and the VA Streamline Refinance available to VA-backed homeowners, the Home Affordable Refinance Program sought to waive the income verifications and appraisals typically required by a mortgage underwriters, giving homeowners an unobstructed path to refinance.
HARP’s key feature was that homeowners would not be required to take on mortgage insurance payments with a refinance if respective mortgages were now over 80% loan-to-value (LTV). If you didn’t pay PMI before using HARP, you wouldn’t have to pay PMI after using HARP.
HARP’s reach as a stimulus tool was hindered in two ways, however.
First, the program was drafted in such a way that lenders making HARP loans were held responsible for underwriting errors made during a homeowner’s original home loan approval. For example, if Bank of America failed to make the proper verifications while underwriting a purchase money mortgage, Wells Fargo could be held responsible for that error if it chose to re-underwrite the loan in the form of a HARP refinance.
As a result, few banks chose to get involved with HARP refinance. The liability was too great.
The second limitation was that HARP capped its loans at 125% loan-to-value. This meant that severely underwater homeowners were ineligible for the Home Affordable Refinance Program; unable to refinance at all.
The launch of HARP 2 in October 2011, though, removed these restrictions. Lenders can now approve HARP loans without concern for the “original underwrite”, and loan-to-value limits are removed completely.
No matter how far you’re underwater, you can use HARP.