HARP 2.0: Mortgage program reboot has boosted refis

Loose coins arranged to make a picture of a house.

The government's revamped Home Affordable Refinance Program has done something the original program couldn't: Get hundreds of thousands of underwater homeowners into new mortgages, recently released data show.

HARP 2.0 — as the March 2012 reboot has been dubbed — tore down restrictive barriers that left homeowners who had no equity without a refinancing option.

Previous government refi programs, including the original HARP, helped far fewer homeowners than expected.

That's primarily because they wouldn't allow applicants to borrow more than 125% of their home's current value.

For the millions of homeowners who saw their property values fall by a third or more, that restriction made the program practically useless.

HARP 2.0 removed that cap, which allowed hundreds of thousands of extremely underwater homeowners to refinance last year, according to a report from the Federal Housing Finance Agency. The FHFA regulates the two government-owned entities — Fannie Mae and Freddie Mac — that provide most of the money for home loans in this country.

The program has been particularly successful in states hardest hit by the housing crisis: Arizona, Florida and Nevada.

Top States for HARP in 2012

State Total Refinances HARP Refinances % HARP Refinances
Nevada 37,786 25,965 68.72%
Florida 212,629 118,302 55.64%
Arizona 125,758 65,562 52.13%
Georgia 128,344 58,013 45.20%
Michigan 179,131 79,289 44.26%
Total 4,750,542 1,074,754 22.62%
Source: Federal Housing Finance Agency

At least one big question remains: Why aren't even more homeowners rushing to beat the deadline to seek a refi?

"I am surprised that more people who can take advantage and refinance have not yet done so," says Sue Pullen, vice president and senior mortgage adviser at Fairway Independent Mortgage in Tucson, Ariz. "With interest rates as low as they are, I have to wonder what they are waiting for."

They might be waiting for a lender who is willing to work with them.

Writing in American Banker, mortgage industry veteran Frank T. Pallotta says the program has fallen short for homeowners with extreme negative equity.

While HARP 2.0 has no limits on how far underwater a homeowner can be, he writes, individual lenders are allowed to set stricter borrower requirements and often cap the LTV at 120%.

Pallotta writes that some lenders even erroneously tell borrowers they don’t qualify for HARP, when they really just don’t qualify with that lender.

If you're turned down, you should look elsewhere. You have plenty of time to do so.

HARP 2.0 was set to expire at the end of this year, but the federal government just extended the program through 2015.

Chart showing HARP Refinances for 2011-2012Here's how to know if you may qualify:

The next step is to gather the financial details lenders require.

"There is still a misconception about HARP 2.0 that there is little to no qualifying on the part of the homeowner. That is false," says Jim Duffy, a senior loan officer with Cole Taylor Mortgage outside Atlanta.

When applying you’ll need:

Different documentation requirements apply if you are self-employed, receive Social Security or a pension, or have alimony or child support obligations or income.

Then you’re ready to start contacting lenders.

Because there's greater risk in refinancing an underwater loan, don't expect to qualify for the best mortgage rates. So if the average 30-year loan costs 3.75%, expect to pay 3.875% to 4.125%, Duffy says.

That's still a fantastic deal.

You can use any lender, and you should shop around for the best rate and lowest closing costs. Use this government website to contact a HARP lender.

Next, consider your term options.

Duffy writes on his blog that most homeowners use HARP to get a new 30-year, fixed-rate mortgage with a lower interest rate, which can shave between $200 and $500 from a monthly mortgage payment.

Other homeowners are saving tens or hundreds of thousands in interest in the long run by refinancing into a 10- or 15-year, fixed-rate loan. These shorter terms can also help them build equity and get above water faster, he writes.

Use our mortgage calculator to determine the monthly payments for the exact amount you want to borrow with this or any home loan.

Or put our 15-year vs. 30-year mortgage comparison calculator to work to see how much money a shorter mortgage might save you.

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