Refinancing Options: What You Should Know About HARP Replacement Program

HARP Replacement Program: If the current state of the market has rendered your home loan unprofitable, refinancing may be the best option for you. It can help you negotiate better loan conditions, such as a reduced interest rate or cheaper monthly payments. 

However, not all homeowners have sufficient property equity to qualify for a typical refinancing. It is for this reason that there are specialized housing assistance programs. 

The Home Affordable Refinance Program also known as HARP was first established in 2009. It was a response to the financial hardships experienced by many American homeowners as a result of the housing market’s collapse. However, HARP ended in 2018. 

Thankfully, it was replaced by two similar but distinct program alternatives from the Federal National Mortgage Association (commonly known as Fannie Mae) and the Federal Home Loan Mortgage Corporation (commonly known as Freddie Mac). Although HARP has been discontinued, it is crucial to learn about it from to be able to understand the replacement programs more.

If you’re considering applying for one of these refinancings, the following are some of the information you should know.

What Was HARP?

The capacity to refinance a property with little equity was very rare before 2009. It was due to lenders’ desire for higher risk-adjusted investment returns. 

But the Home Affordable Refinance Program shifted the balance. The Federal Housing Finance Agency (FHFA) launched HARP to aid homeowners with underwater loans to keep their houses.

When you have mortgages that exceed the value of your home, you are said to be “underwater.” HARP enabled homeowners to keep their homes by refinancing at more favorable terms, such as a lower interest or less required equity.

HARP was ultimately adjusted to allow refinancing up to 125% of the value of the house without requiring to pay for mortgage insurance. The program concluded on December 31, 2018 after being extended thrice throughout the years.

From its inception in April 2009 until its closure, HARP was utilized by over 3.5 million borrowers. Although HARP is no longer taking new applications, some homeowners still have loans through the program that are still in good standing.

Key Differences Between HARP And The New Programs

Several significant distinctions separate Home Affordable Refinance Program from its replacement program.

Unlike HARP, in which homeowners could only participate once, there is no limit on the number of times they might use these newer programs. However, under the policies of both organizations, you cannot utilize them if you have already used the HARP refinancing program.

On top of that, there is now a required loan age, which wasn’t the case with HARP. Loans that are underwater must be at least 15 months old until Fannie Mae or Freddie Mac may refinance them. 

It improves the transparency of the lending process. It decreases loan cycling, a kind of predatory lending in which a lender motivates a borrower to continually renew a loan at the borrower’s expense in the form of higher interest rates and fees.

The loan-to-value ratio is the basis for the new loan programs. This ratio is determined by dividing the outstanding loan total by the property’s assessed value. 

Over and beyond the minimum LTV ratio of 80% needed by HARP, both programs demand an LTV ratio of 97.01% for a single-family house. Like HARP, these refinancing options do not impose limits on loan-to-value ratios.

HARP Program 2022 Alternatives

Currently, two new initiatives took the role of Home Affordable Refinance Program. The high loan-to-value refinancing option from Fannie Mae and the enhanced relief refinance program from Freddie Mac.

Mortgages are purchased by government-sponsored enterprises (GSEs), and then resold to homebuyers at reduced interest rates. These two programs are designed for homebuyers with high loan-to-value ratios who currently have loans with Fannie Mae or Freddie Mac. 

Compared to HARP, which only assisted underwater borrowers, these newer initiatives can help a far larger population with refinancing. Thus, greatly benefiting the property market.

The two initiatives are intended to assist individuals whose LTV ratios are too high to qualify for conventional refinancing with a private lender. Because of this, homeowners whose homes have lost value but whose income and credit are still solid can take advantage of historically low mortgage rates.

Except for different minimum LTV ratios for multi-unit properties, Fannie Mae and Freddie Mac have similar qualifying requirements and features. You can’t also use the Fannie Mae high loan-to-value refinancing option with a Freddie Mac-backed loan, and vice versa. It is because each GSE has its own set of guidelines for loans they support.

If you refinance this way, you can avoid paying for new mortgage insurance, resulting in a lower monthly payment. Additionally, these programs have simplified rules for documentation and validation, so it won’t be as hassle as conventional refinancing.

Fannie Mae High Loan-to-Value Refinance Option

Refinancing can be difficult for homeowners with low or no equity, but Fannie Mae has a program to help with that. This program helps homeowners who are good payers with Fannie Mae but have a higher loan-to-value ratio than is typically required for refinancing. With this kind of refinancing, you may be able to reduce your monthly mortgage payment, shorten the period it takes to pay off your loan, or do both.

The minimum LTV ratio for a single-family house with this option is 97.01 %. Moreover, it has additional criteria based on the number of units and whether the property will be used as an investment or primary residence.

The mortgage insurance you already have can be carried over to the new loan, and you won’t have to obtain a new one. In addition, the requirements for proving your income, work, and assets are easier to meet than they would be with traditional refinancing.

If you fulfill the conditions, you can use this option to refinance your mortgage as often as you need compared to HARP which only allows one refinancing opportunity. However, suppose you have already refinanced your mortgage through HARP. In that case, you will not be able to utilize Fannie Mae’s high loan-to-value refinancing program.

Freddie Mac Enhanced Relief Refinance

If you have little equity in your property but still want to refinance to better rates, you may also qualify for the Freddie Mac Enhanced Relief Refinance program. Homeowners with Freddie Mac mortgages who are current on their payments but whose loan-to-value ratios prevent them from qualifying for a conventional refinancing may be eligible for this program.

The minimum loan-to-value LTV ratio for a Freddie Mac Enhanced Relief Refinance on a single-family house is 97.01%, which is similar to Fannie Mae’s high loan-to-value refinance option. Minimum loan-to-value ratios vary by the number of dwelling units and what purpose the property will be used for.

No additional mortgage insurance premiums will be required, and current mortgage insurance will be carried over under this arrangement. In addition, you won’t have to prove your financial standing with as much paperwork as you would for a traditional one.

While HARP only allowed for one mortgage refinancing per borrower, with Freddie Mac, you may refinance as often as you need. However, if you have received assistance under HARP, you will not be eligible for the Freddie Mac Enhanced Relief Refinance program.

HARP Replacement Program Eligibility

To qualify for HARP Replacement Program, you must have a mortgage note issued by Fannie Mae (on or after October 1, 2017) or by Freddie Mac (on or after November 1, 2018). Moreover, you have to take note that refinancing with a high loan-to-value ratio requires a 15-month difference between the original mortgage note and the new one.

Also, no more than one 30-day delinquent in the previous 12 months is permitted, and you must have a good payment history. No prior DU Refi Plus, Refi Plus mortgage, or HARP refinancing on the same mortgage is permitted.

How To Apply For HARP Program Replacement

Applying for HARP might be confusing since different sources give different instructions. That’s because when HARP was first introduced, the U.S. government revised the program’s criteria and application procedures. Below are the basic steps to keep in mind when applying. 

To apply for Home Affordable Refinance Program replacement, find out whether your mortgage was insured by Fannie Mae or Freddie Mac. Investigate the market value of your property as well. Utilize a home value calculator to determine the estimated worth of your property.

Find out what your loan-to-value ratio is. There is a minimum loan-to-value ratio that must be met to refinance under either program. You can calculate your LTV ratio online and check if you qualify for either program.

Also, check out the competition’s prices and scrutinize additional refinancing options offered by direct lenders, loan brokers, and loan aggregators. Avoid jumping at the first reasonable choice you come across. Explore your options and choose a plan that best suits your circumstances financially.

Final Note

Existing refinancing programs can provide homeowners with affordability issues with assistance. Refinancing under one of HARP replacement programs may be a good option for those who are now underwater on their mortgages. In addition, interest rates remain around record lows.

Reducing your interest rate and mortgage repayments not just saves you money but also accelerates the accumulation of equity. Check to see whether you are qualified to refinance your mortgage and make the most of the options that are available to you.

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