The U.S. government deploys several resources for Americans who need help financing a home purchase, including the popular FHA Loan program. But unbeknownst to some, there are also tools available for current homeowners who have fallen behind on their mortgage payments.
One of them is known as the Home Affordable Refinance Program managed by the Federal Housing Finance Agency, a wing of the Treasury Department. Although it was set to expire in September, HARP has been extended once again, continuing to offer homeowners additional options if they find themselves underwater on their mortgages.
Background of HARP
HARP was originally created as a direct response to the housing crisis and economic recession that began in 2008. During this time, as property values around the country plummeted, large numbers of mortgage borrowers found themselves paying off home loans that were now more expensive than the market value of their house. This caused millions to slip into foreclosure, especially with homeowners who had just recently bought had not yet built up significant equity.
The surge in foreclosures around this time was abetted by the fact that many of these homeowners were unable to refinance and gain some relief from ballooning debt. Conditions in the U.S. real estate market at the time made it unfeasible for financial institutions to save these loans from foreclosure.
To rectify this complex problem, the FHFA authorized federal lenders Fannie Mae and Freddie Mac to enact HARP. Beginning in March 2009, HARP offered refinancing services to homeowners who met certain qualifications. These qualifications remain mostly intact in the current iteration of HARP, which may offer assistance to mortgage borrowers who:
- Are paying off a mortgage originated on or before May 31, 2009 and is currently owned by Fannie Mae or Freddie Mac.
- Have a current loan-to-value ratio (LTV) over 80 percent. LTV is the amount of debt owed on the loan divided by the home’s current value, expressed as a percentage.
- Are up-to-date with their mortgage payments, and have a history of on-time payments over the last year.
- Either live in the home as a primary residence, or consider it a second home or investment property with no more than four units for rent.
The official website of HARP offers tools for users to find out if their mortgage meets most of these qualifications, and guides them through the application process.
Does HARP work?
Some policy analysts had speculated that after nearly eight years and previous renewals, HARP would soon be on the chopping block for federal budget planners. Its renewal through 2018 is therefore a demonstration of its success as well as the need that still exists.
A study from the Urban Institute found that despite early struggles, HARP could now be considered “arguably the most successful housing policy initiative coming out of [the 2008 housing crisis].” The FHFA estimated that HARP refinanced around 2 million loans just in its first two years, a figure that has since surpassed 3.5 million. With HARP borrowers saving an average $200 per month on their mortgage, the program has provided cumulative savings of approximately $35 billion since its inception.
HARP activity peaked around 2012, but its selective criteria means there are likely few homeowners who would still qualify. The FHFA estimated that as of March 2017, roughly 143,000 U.S. homeowners could still take advantage of the program, but that this was likely an overestimation of the number who will actually do so.
Regardless, the continuation of HARP for another year solidifies its legacy as a landmark policy achievement. That’s particularly true, according to the UI study, because HARP needed to be overhauled several times after its inception before it began refinancing loans en masse. Several of these modifications turned out to be forebears to the way mortgage lenders do business today:
- Instead of paying for in-person home appraisals, qualifying properties were processed through an automated valuation system.
- Mortgage insurers adopted a unified approval process to move coverage from old policies to new ones easily.
- Fannie Mae and Freddie Mac increased competition among lenders by reducing the number of underwriting assurances they required for HARP loans.
The Urban Institute concluded that these three changes to the program were largely responsible for its success in reducing refinancing risks for mortgage lenders and passing savings onto the homeowner. The FHFA has also created additional homeowner assistance programs in the mold of HARP, taking these lessons and applying them to other aspects of the home finance market.
With HARP here to stay, both homeowners and mortgage lenders are in a great position to work more effectively and keep the U.S. housing market as robust as ever.