HARP ProgramMaking Sense of HARP Loans

October 14, 2014by Darryl Bledsoe

What is a HARP loan? Well, the acronym stands for Home Affordable Refinance Program. What it is in its most basic form is a way for homeowners stuck paying a high interest rate or variable rate mortgage loan to refinance with little or no equity.

To really understand the HARP program, though, we have to look back in history a little.

From 2005 to 2007 home values were at the highest they had been in quite some time. Everyone was optimistic, builders built new homes, and families excitedly bought the homes they always dreamed about. These dream homes were often financed with subprime loans. These loans would have a two to three year locked in introductory low interest rate keeping the payment affordable at purchase. After the two to three year term expired, the rate would jump up tremendously and cause the borrower to experience payment shock.

Many borrowers relied on refinancing prior to the term expiring but in mid-2007 when values stopped climbing they could no longer refinance because their value had yet not increased. Borrowers who had previously been certain they’d always have the money to pay for their loans were now faced with adjusting mortgage payments that almost doubled what they were paying before. Many people were left jobless and stuck with un-payable mortgages on houses that were fast losing value.

As housing prices dropped so did interest rates, but a large number of homeowners were locked into the old interest rates because the value of their houses had become considerably less than the mortgage due. The HARP government program aids families in this situation by allowing those with loan to value ratios of higher than 80% to refinance their home into a fixed low rate. The astounding thing is that many homeowners who qualify have still not taken advantage of the HARP loan program. Qualifying is relatively easy and a borrower who is current on their mortgage payments, without a late payment within the last 12 months is eligible. The HARP refinance must also be shown to have actual value to the borrower; it must either give him lower monthly payments or a fixed rate mortgage for a borrower who was originally on an adjustable loan.

Besides those conditions, the mortgage must be owned or guaranteed by the organizations Freddie Mac or Fannie Mae, and to have been acquired by them on or before May 31, 2009.

Although a large percentage of problematic mortgages are covered by these conditions, there are some that are not.


Making Sense of HARP Loans
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