How do "underwater homeowners" spell mortgage relief? H-A-R-P. It stands for the "Home Affordable Refinance Program."

This government-sponsored initiative was designed to bail out homeowners with Fannie Mae or Freddie Mac-owned loans who want to refinance their loans but the balance is higher than the market value of the property. The initial program was introduced in 2009 and was scheduled to expire on July 1, 2012. Certain enhancements were added late last year, generally effective as of December 1, 2011, and the program has now been extended through December 31, 2013.

Homeowners can now take advantage of changes from the latest revamping of the program, commonly known as HARP 2 or HARP 2.0.

Who Is Eligible for HARP 2?

To be eligible for a HARP 2 refinancing, follow these general guidelines.

1. Your loan must be owned or guaranteed by Fannie Mae or Freddie Mac. If you are not sure, check the Fannie Mae and Freddie Mac websites or call their toll-free numbers for confirmation.

2. You must have closed your current loan on or before May 31, 2009.

3. You must not have made a late payment within the past six months and have had no more than one late payment within the past 12 months.

4. Your loan must fall under the current FHA loan limits, which vary from one area to another. If you are unsure, contact your current mortgage company or check by clicking here.

Fannie Mae and Freddie Mac have helped approximately nine million homeowners refinance at a lower interest rate or shift to a more favorable mortgage product. About 10 percent of those have benefited through the HARP program. What makes HARP unique is that it enables borrowers who owe more than the value of their home -- in other words, homeowners with a negative equity in their home -- to take advantage of refinancing benefits.

Under HARP Version 1 (or 1.0), a homeowner with a current loan-to-value ratio above 80 percent could refinance up to 125 percent of the current value of a loan sold to Fannie Mae or Freddie Mac before June 1, 2009. For example, if you still owed $125,000 on a house that was currently worth $100,000, you could qualify for HARP refinancing. However, if you owed more than 125 percent of the home's value, you were locked out of the program.

HARP 2 was developed with input from mortgage lenders, insurers and other industry participants. This revamped program will continue to apply to borrowers with loans sold to Fannie Mae or Freddie Mac before June 1, 2009 with a current LTV ratio above 80 percent. It also includes the following enhancements:

  • The 125 percent loan-to-value ceiling for borrowers with fixed rate mortgages has been repealed. 
  • A borrower may qualify for a HARP 2 refinancing if he or she has made timely payments during the last six months and has no more than one 30-day late payment in the last 12 months. Under the initial program, you could not have any delinquencies in the prior 12 months. 
  • Previously, loans may have included "loan level price adjustments," that could reach up to 2 percent of the loan amount for a HARP refinancing. These fees are reduced to 0 percent on loans lasting 20 years or fewer and 0.75 percent on loans lasting more than 20 years and adjustable rate mortgages (ARMs). 
  • The new program eliminates the need for a new property appraisal where Fannie Mae or Freddie Mac has provided a reliable automated valuation model (AVM) estimate. 
  • HARP 2 waives certain representations and warranties that lenders must commit to relating to loans owned or guaranteed by Fannie Mae and Freddie Mac.

Note, however, that the LTV cap for borrowers with ARMs remains at 105 percent. This is the same as it was in the initial HARP.

What's the prognosis for the revised program? It is expected that HARP 2 will provide an additional one million refinancings for beleaguered homeowners. The average loan balance is estimated to range from $150,000 to $175,000.

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