HARP 2.0 Intends to help more homeowners, but who qualifies?

This March, the Obama administration will implement a newer version of the federal Home Affordable Refinance Program, dubbed HARP 2.0.  The original HARP program which was created in 2009 helped less than 30 percent of the homeowners it intended to aid by lowering interest rates on existing mortgages.  Why was HARP so unsuccessful? Strict guidelines, including loan-to-value ratio, eliminated much of the pool of potential candidates who otherwise might have benefited from the program.

What are the key features of HARP 2.0?

It’s open to 50% of home loans owned or insured by Fannie Mae and Freddie Mac. This means that approximately 900,000 homeowners should qualify for the HARP 2.0 program.

• Those that qualify are exempt from having to obtain mortgage insurance.
• HARP 2.0 eliminates fees for borrowers who switch to shorter-term mortgages
• HARP 2.0 disqualifies loans sold to Fannie Mae and Freddie Mac after May 31, 2009.  Those loans sold after this time period would only see modest savings anyway and the added administrative costs from HARP would have to be passed on to the homeowners.
• The program excludes anyone who was late with more than 1 payment or who is currently unemployed.

With much of South Florida’s homeowners significantly underwater in the value of their home, the loan-to-value ratio guidelines of HARP 2.0 make qualifying for the program nearly impossible for many.  Original guidelines of HARP called for a loan-to-value ratio of 80-105%. Since HARP began in 2009, 91 percent of loans in this program had a LTV ratio of 80-105 percent and only 8 percent fell in the LTV ratio of 105-125 percent.

Although the federal government may have eased up on this requirement, the voluntary nature of participation will find that many banks will adhere to this threshold. Until housing values hit rock bottom, refinancing a home that currently has a LTV of 105 percent or greater imposes more risks and costs to the banks and they may choose to leave this cap in place.

Homeowners that don’t currently carry a Fannie Mae or Freddie Mac loan can find relief in other ways as well. The Federal Housing Administration will insure lenders if they refinance FHA insured loans with a loan-to-value ratio of 97 percent. The Veterans Administration also has a similar program, and there are numerous other refinance and loan modification programs. To find a program that’s best for you, call Richard Adams Law (888) 724-9860 or visit our website at www.richardadamslaw.com for a free consultation.