A brief history of important changes to HARP.
Making Home Affordable (MHA) is the Obama Administration's initiative aimed at helping struggling homeowners get mortgage relief through a variety of programs, such as mortgage modifications, interest rate reductions, refinancing, or deferred payment -- all designed to assist the homeowners to avoid foreclosures.
If homeowners are not behind on their mortgage payments but have been unable to get traditional refinancing because the values of their homes have declined, then they may be eligible to refinance through MHA's Home Affordable Refinance Program (HARP). HARP allows homeowners to obtain a new, more affordable and more stable mortgage. HARP refinance loans require a loan application and underwriting process, and refinance fees will apply.
HARP 1.0 was created by the Federal Housing Finance Agency (FHFA) in March 2009 to grant those with a loan-to-value (LTV) ratio exceeding 80% to refinance without also paying for new mortgage insurance. Originally, only those with an LTV of 105% could qualify. Later that same year, the program was expanded to include those with an LTV of up to 125%. This meant that if a homeowner owed $125,000 on a property that is currently worth $100,000, he/she would still be able to refinance and lock in a lower interest rate..
To many homeowners, HARP 1.0 was largely an ineffective program. Of the 5 million homeowners, the program was supposed to provide relief, but only 20% could refinance under the program. In December 2011, the rule was changed yet again and HARP 2.0 was introduced; there would no longer be any limit on negative equity for mortgages up to 30 years – so even those owing more than 125% of their home value could refinance without PMI.
Certain criteria must be met to qualify for HARP. While there may be additional criteria imposed by the mortgage servicer, the government requirements are as follows:
- The mortgage must be owned or guaranteed by Freddie Mac or Fannie Mae. Many homeowners are unaware that their mortgages are linked to one of these organizations, since neither Freddie Mac nor Fannie Mae deals directly with the public.
- The mortgage must have been completed on or before May 31, 2009.
- The homeowner must not have a previous HARP refinance of the mortgage, unless it is a Fannie Mae loan that was refinanced under HARP during March-May 2009.
- The homeowner must be current on their mortgage payments, with no (30-day) late payments in the last six months and no more than one late payment in the last twelve months.
- The current LTV ratio of the property must be greater than 80%.
- The homeowner must benefit from the loan by either receiving a lower monthly payment or moving to a more stable product (i.e., going from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage).
Another feature of HARP is that the applicants can forgo a home appraisal if a reliable automated valuation model is available in the area. This can save the borrower time and money, but is subject to the discretion of the mortgage servicer. The program also caps the sum of the Adverse Market Delivery Charge and Loan Level Pricing Adjustment to 75 bps for loans with a term greater than 20 years and 0 bps for loans with a term less than or equal to 20 years.
HARP 2.0 was largely successful for the first few months of the program; however, the lender participation was anemic. Since then, FHFA has proactively made some more policy changes that increased lender participation (shown in Exhibit 1). Some of the policy changes include:
- Rep and Warranties: FHFA directed the government-sponsored enterprises (GSEs) in September 2012, to implement a new Rep and Warrants framework relieving lenders of loan put-back risk if the first 12 payments are made.
- Documentation: FHFA directed the GSEs to reduce the income and asset documentation requirements in cases where the borrower has liquid assets to cover the first 12 month payments.
- GSE alignment: GSEs worked to harmonize their underwriting systems to align their HARP guidelines, reducing the complexity for the lenders in refinancing under HARP.
- Capacity and Outreach: The smaller servicers did not have the incentive to increase their capacity nor had the resources to handle refinancing under the program that has a short duration. FHFA extended HARP 2.0 to December 31, 2015, to alleviate some of these concerns. To decrease the costs for smaller servicers, the GSEs have created a variety of solicitation material to make it easy for servicers to reach out to HARP-eligible borrowers.