HAMP Borrowers Can Still Refinance with HARP, But Time Is Running Out
By Kerry Curry | May 19, 2016
Time is running out for homeowners with Home Affordable Modification Program (HAMP) refinancing to move into the government’s affordable refinance program.
The application period for the Home Affordable Refinance Program – or HARP – ends on Dec. 31, 2016.
HAMP was initiated in April 2009 in the midst of the housing crisis to help borrowers experiencing financial hardship get mortgage relief and avoid foreclosure. Like HARP, it also expires at the end of the year.
“HAMP was intended for borrowers who were struggling with their mortgage payments because of any type of life changes,” says Blake Hampton, HARP program manager for Fannie Mae. “A lot of these borrowers had their interest rate reduced, had the loan term extended, or may have had principal forbearance.”
Initiated at the same time as HAMP, HARP allows refinancing among homeowners who are current on their mortgage payments but owe more than their house is worth.
The HARP program has gone through several changes. It currently allows homeowners with a loan-to-value (LTV) ratio greater than 80 percent to qualify – with no maximum LTV limit. In addition, borrowers must have a mortgage owned by Fannie Mae or Freddie Mac, have closed on the loan prior to June 1, 2009, and be current on their mortgage payments.
HARP was set to expire in 2015, but it was extended through the end of 2016. No further extensions are anticipated.
Why Move from HAMP to HARP?
Permanent HAMP modifications require interest-rate resets after five years. Then the mortgage interest rate resets every year until it reaches the market rate that existed at the time of the loan modification. Market interest rates at the time of most HAMP modifications were around 5 percent or 5.5 percent — which is higher than today’s interest rates, and which makes moving into a HARP refinance attractive.
“There’s a misperception in the marketplace that borrowers who took advantage of the HAMP program are not eligible for HARP,” Hampton says. “What we want to make clear to borrowers and lenders is that having a HAMP modification doesn’t prohibit you from taking advantage of HARP.”
There may be some borrowers who won’t qualify for HARP if they haven’t made on-time mortgage payments under their HAMP modification, but there is no prohibition against HAMP recipients applying for HARP.
“What we don’t want is to have HAMP borrowers who can make their payment today at 3.5 percent struggle to make it at 5.5 percent after a few resets, when they could move into a more stable and affordable payment through HARP. If they don’t reach that rate until next year, the HARP program will have expired and some borrowers will have lost the chance to refinance,” Hampton says.
Case by Case
A borrower who recently got a HAMP modification and has a 2 percent interest rate on the loan, probably wouldn’t be a good candidate for HARP since the interest rate likely would be about 4 percent.
However, HAMP homeowners who have already experienced interest-rate resets, or whose rates have not yet permanently reset, may have more incentive to refinance under HARP before the program expires – even if it means refinancing into a slightly higher mortgage rate now to avoid higher resets later.
No matter what their reset stage, HAMP borrowers are eligible to refinance into HARP if they can meet HARP’s guidelines. Under those basic requirements, borrowers must have a first mortgage with an LTV ratio greater than 80 percent, must be current on their loan, and must have no late payments in the last six months and no more than one 30-day late payment from seven to 12 months ago.
The Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac, says the two GSEs have completed more than 650,000 HAMP permanent modifications since April 2009.
The number of borrowers who could potentially benefit by moving from HAMP to HARP is in the thousands, Hampton says.
Lender HAMP-to-HARP Outreach
“For lenders, we want to be sure they know that just because a borrower has been modified through HAMP, it doesn’t preclude them from HARP,” adds Hampton.
Some lenders have been having success getting borrowers to refinance into a more stable product even if it means an immediate interest rate increase. Borrowers like that they won’t face additional rate increases from future resets. In addition, HAMP-modified borrowers might still see a payment reduction – even if they refinance into a higher interest rate – if the new loan results in an extension of the existing loan term for up to 30 years.
“We can show a client what is available to them today to lock into a 30-year, fixed-rate mortgage at today’s current market rates, which might be the best option for them,” says Quicken Loans Vice President Bill Banfield.
Quicken Loans has maintained a robust advertising campaign around HARP for a number of years through a variety of mediums – including television, web, and direct mail, Banfield says. “We think a lot of people can still benefit from HARP,” he says. “We just want to help people to get into the best situation possible.”
Kerry Curry is a freelance writer for several Texas and national publications and is the former executive and magazine editor for HousingWire.