We remember all too well the events that led up to the eventual recession that began back in 2008. Home buying was at a frenzy and property values were soaring. Buyers would buy a house and turn around and sell it sometimes in as little as 30-60 days and turn a profit. “Flipping” became a new term used in the real estate industry while at the same time mortgage lenders came up with new loan programs competing with one another to finance a home to someone that wouldn’t ordinarily have qualified. This ultimately led to loans being issued to those with poor credit or with no verifiable income. This in turn led to the housing industry’s greatest downfall since the Great Depression. Homes were foreclosed upon. Banks went out of business as well as the mortgage companies that invented these so-called toxic loans.
Home values plummeted and quickly. When borrowers couldn’t afford their payments or their plans to quickly flip a property were dashed as home values fell below the current mortgage balance. If someone wanted to sell a home, that often meant coming to the closing table with thousands of dollars. This despite tumbling interest rates. Rates were low but refinancing to a loan with a lower monthly payment wasn’t an option because there was no equity in the home. Mortgage lenders then required at least a 10 percent equity position for most conventional loans. Then HARP came along in 2009.
HARP stands for the Home Affordable Refinance Program and was designed specifically for homeowners who wanted to refinance to a lower rate or out of an adjustable rate mortgage into a fixed who had no equity. HARP allowed homeowners to refinance even if their loan balance represented at least 125% of the current appraised value of the home. This helped, but there were millions more who couldn’t refinance because their values fell way below what the initial HARP program allowed. In 2012, HARP eliminated the need for an appraisal altogether. This essentially eliminated any valuation issues which meant anyone could use the program regardless of current value.
There are some basic qualifications such as no payments made within the previous six months more than 30 days past the due date and no more than one payment within the last three years. The mortgage must also be owned by either Fannie Mae or Freddie Mac. If this is something you’re interested in or want to know more about, call or email us today.
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