HARP 2.0 has been a very successful program and is set to expire at the end of this year but HARP didn’t start out as a success. As the economy was struggling to gain footing during the recession Congress put together a special mortgage program that allowed homeowners who were underwater refinance their current loan and take advantage of the lower rates available. However, conventional loans require some equity before a loan can be refinance and cannot exceed 90% of the current value of the property. As property values fell during the latter half of the last decade that left many who could not refinance because they were “upside down” with their mortgage. They owed more than the home was worth.
The Home Affordable Refinance Program was introduced in 2009 and allowed homeowners to refinance up to 125% of the current value of the property. This meant the lender using the HARP program would also order a property appraisal to determine value. While this helped some homeowners it left out millions more that owed way more than 125% of the value of the property. The borrowers would still have to qualify for the mortgage but the guidelines were much less stringent compared to the original approval.
In 2011 the HARP program was introduced yet again with some changes, primarily the requirement for an appraisal. As long as the borrowers were current on their mortgage, no more than one payment paid 30 days past the due date over the previous 12 months and the loan was funded before June 1, 2009 the new HARP “2.0” would let borrowers refinance to a lower rate. The final stipulation was the loan must currently be owned by Fannie Mae or Freddie Mac. Even if the amount borrowed was $300,000 and the current value $100,000 the loan could be refinanced using HARP 2.0 because there was no need for an appraisal.
But what about Jumbo loans, loans that exceed the Fannie Mae and Freddie Mac loan limits? In most parts of the country the maximum loan amount is $417,000. If the loan was greater than the limit, it could not qualify for Fannie or Freddie status. For areas that have been deemed “high cost” the limit could then be as high as $625,550 and still be eligible to be underwritten to Fannie and Freddie guidelines.
For loans that exceed acceptable limits, they’re referred to as “jumbo” loans yet such loans are not eligible for sale to Fannie Mae or Freddie Mac. That means jumbo loans do not qualify for HARP 2.0 status. However, if the loan amount is at or below conventional limits and the borrowers meet the eligibility requirements established in HARP 2.0 guidelines, those that are underwater on their mortgage can still take advantage of the HARP 2.0 program.
For those that are just barely over the conventional limit there are some options. The obvious choice is to pay the current mortgage balance down to the allowable limit. The other is to take out a second mortgage using the funds to pay down the first lien to the acceptable level. HARP 2.0 does allow for subordinate financing. Remember, the HARP 2.0 program is an improved version of the initial rollout and there are those who applied for the first HARP and didn’t qualify to do valuation issues and don’t know the HARP 2.0 program eliminates value requirements altogether.