HARP Loans (No Longer Available): History and Current Replacement Programs

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The U.S. Government’s Home Affordability Refinance Program (HARP) was a lifeline for American homeowners who found themselves in a tight spot, possessing little or no home equity following the great recession. HARP allowed these homeowners to refinance their mortgages under more favorable interest rates.

The program officially launched on April 1, 2009, and ended on December 31, 2018.

HARP was the government’s proactive response to the pervasive mortgage troubles that resulted from the Great Recession. Although the program concluded in 2018, its legacy lives on through several other federal mortgage refinancing initiatives, such as those administered by Fannie Mae and Freddie Mac, which provide similar benefits.

HARP Replacements

A handful of programs emerged after HARP, including Freddie Mac’s Enhanced Relief Refinance Mortgage® and Fannie Mae’s High LTV Refinance Option (HIRO) mortgage program.

Just like HARP, these programs are no longer active. Fannie and Freddie put these programs on hold in 2021 due to low application numbers.

Those underwater and seeking a refinance should contact their servicer or another lender to determine options. Those with an FHA or VA loan may also consider the FHA and VA’s streamline refinance option.

HARP History

The following gives more information about historic HARP requirements. HARP is no longer an active program; as mentioned above, additional options exist for underwater borrowers.

Who Qualified for HARP?

To qualify for HARP, homeowners had to have a mortgage backed by Fannie Mae or Freddie Mac. Much of the market at this time fell into this category, except for those with an FHA, VA loan, or a jumbo loan.

Additional requirements included:

  • The borrower’s mortgage wasn’t previously refinanced through HARP.
  • Borrowers also had to be current on their mortgage payments (no more than one late payment over the past year and no late payments in the last six months).
  • Fannie Mae or Freddie Mac purchased the mortgage before May 31, 2009.
  • The current loan-to-value (LTV) was greater than 80%.

Was HARP Restricted to Underwater Mortgages?

HARP allowed refinancing mortgages with an LTV greater than 80 percent (e.g., less than 20 percent equity) and underwater mortgages where the borrower owed more than the property was worth. Meaning the HARP program was not strictly limited to underwater mortgages. Many of the home loans refinanced under HARP had been mortgages where borrowers had some equity but not enough to qualify for a conventional refinance.

125 Percent Cap Lifted

The biggest change in HARP 2.0 came in October 2011. HARP lifted the limit on how far underwater your mortgage could be to qualify. Previously, there was a 125 percent loan-to-value limit on mortgages refinanced through HARP – that is, the balance owed on your mortgage could be no more than 25 percent greater than the value of your home. Under the updated rules, it didn’t matter how much your home had fallen in value. You could still qualify to refinance your mortgage.

Automatic Appraisals

The then-new rules for the program allowed lenders to use automated systems to produce an estimated value for your home rather than requiring an actual appraisal. Automatic appraisals offered several benefits for borrowers. First, an automated appraisal meant you didn’t have to pay for having an actual appraisal performed, which could save several hundred dollars. It was also faster.

It also made it easier to qualify. With the loan-to-value cap lifted, the program wasn’t worried about getting a precise home value estimate. However, in some situations, a lender may still have required an actual appraisal.

Not Required to Refinance with the Same Lender

Under HARP, the borrower wasn’t required to refinance the mortgage with the same lender currently servicing it. However, many lenders, particularly the larger banks, only did HARP 2.0 refinances for their current customers. For this reason, when seeking a HARP refinance, many contacted their current mortgage servicer.

Lenders May Have Additional Rules

Similar to today’s market, lenders had their own overlays. The guidelines described above depict the basic rules for HARP 2.0 set forth by Fannie Mae and Freddie Mac. Individual lenders, however, may have their own rules, known as overlays, for the program.

For example, HARP has no minimum credit score requirement, but many lenders will require that borrowers have a score of at least 620 before considering them for a HARP refinance.

Lenders may also impose loan-to-value restrictions on mortgages they will refinance, even though Fannie and Freddie have no limit. Some lenders kept the 125 percent loan-to-value limit for mortgages they would refinance under HARP 2.0.

Why Only Fannie and Freddie Mortgages?

HARP remained limited to Fannie and Freddie loans because both companies fell into government receivership during the market crash – meaning the government can tell them what rules to follow when refinancing mortgages. Since HARP ran through Fannie and Freddie, it couldn’t be used to refinance mortgages backed by strictly private lenders.

The FHA, VA and USDA – all government programs – have their own programs for refinancing underwater and low-equity mortgages guaranteed by them.

Borrowers Using HARP

Those using HARP were underwater after the housing collapse during the Great Recession.

For example, consider John and Mary, a middle-aged couple who purchased their house in 2006. When they bought their home, it was worth $200,000, and they put $20,000 down, securing a mortgage for $180,000 at a 6% interest rate.

They were thrilled with their home and the interest rate they got, believing it to be quite reasonable at the time. Their monthly payment was affordable, and they were happy to be homeowners. However, when the Great Recession struck in 2008, things took a turn for the worse.

Their house value dropped significantly due to the economic downturn and was now worth only $130,000. Despite diligently making their mortgage payments, they found themselves upside down on their mortgage, owing more than their house was worth.

At this time, their bank started offering lower interest rates – as low as 4%. A lower rate would have lowered their monthly payment significantly and allowed them to pay off the mortgage much faster. However, to refinance, the bank required they make up the $50,000 difference between the home’s value and what they owed on their mortgage, which was not financially feasible for John and Mary.

This is where HARP came to their rescue. The program enabled them to refinance their mortgage at the lower 4% interest rate without making up the $50,000 difference between the value of their home and the outstanding mortgage balance. HARP allowed them to take advantage of the low-interest-rate environment, save on their monthly payments, and potentially save tens of thousands of dollars over the lifetime of their mortgage, which was a significant relief in their financial situation.

Contact us today if you’re underwater and interested in exploring refinance options.

Kara Johnson

Kara is a Rye, New York-based author and contributing writer for Refi.com. She is a graduate of Hampshire College.