HARP 2: Home Refinance Program that May Actually Work

Monday, February 27, 2012 11:08am
Silhouette of a superhero
The famous saying “If at first you fail, try, try again,” didn’t become famous because it sounded optimistic and noble, but rather because it’s necessary in the pursuit for success. This old adage doesn’t only apply to the individual, but also to groups, businesses, and even the government.

As our lawmakers discovered with the original Home Affordable Refinance Program (HARP), they are not immune to failure. The original HARP launched with wonderful ambitions, but it wasn’t equipped with the proper tools to complete those goals. This government-sponsored program was supposed to be the underwater homeowner’s champion, coming on horseback under a light of glory, lifting the struggling upside-down home loan borrowers back onto their feet while simultaneously vanquishing the economic suffering experienced across the country.

But the nation’s knight in shining armor stepped out from his castle, and was felled with a single arrow—leaving the nation speechless.

The government and its lawmakers poured over the original HARP, trying to determine where it failed. They discovered the problem wasn’t in HARP’s purpose, but instead in the restrictions it contained to carry that purpose out. HARP was designed to allow underwater homeowners to refinance their home mortgage loan so that it became more manageable. But lawmakers greatly underestimated the damage done by the housing bubble.

HARP granted refinance loans of up to 125 percent of a property’s value to Freddie- and Fannie-backed home loans. For instance, if a homeowner owed $125,000 on a home that an appraiser said was worth $100,000, that homeowner could apply for a refinance loan through HARP since the home was 125 percent underwater. The problem was few properties that were actually impacted by the housing bubble's destructive nature could meet this loan-to-value (LTV) requirement. Rather, most were far deeper underwater than that—some several hundred percent deeper.

The end result was a castrated home loan refinance program that the suffering couldn’t qualify for, while only those with no use for the program could.

From the Ashes a New Hero Arises

So some of the nation’s top minds rushed to the broken pieces of the original HARP and tried to put them all back together. During this reconstruction phase, however, they decided to keep the noble aspirations of the program intact while removing its inhibiting restrictions. The newly formed HARP 2 is meant to help homeowners refinance their home loan, regardless of how far underwater their property is.

HARP 2’s most notable advancement is this removal of the LTV restriction. For borrowers with fixed-rate mortgage loans, there is no longer an LTV limit, which consequently allows homes that have sunk to deepest trenches of this murky economic body water to acquire a refinance.

Some additional details of HARP 2, as outlined by the Federal Housing Finance Agency’s HARP Phase II Q&A’s, are:

  • Eligible loans are those owned by Fannie Mae and Freddie Mac that were taken out before May 2009.
  • For adjustable rate mortgage borrowers, the LTV cap will remain at 105 percent
  • HARP requirements originally didn’t allow any delinquencies, but now borrowers are eligible if all payments in the last six months were made on time, and a maximum of one delinquency has occurred in the last 12 months.
  • Fees for a HARP refinance loan are zero percent for home loans of 20 years or less, and 0.75 percent for those with more 20 years left.
While HARP 2 officially went into effect in December, most lenders will not be pushing this program until March, 2012, when certain underwriting details are released.