According to the Wall Street Journal, approximately 23% of US homes are underwater – meaning the homeowner owes more than their home is worth. The percentages vary widely state-by-state. For example; 47.9% of Arizona mortgages were estimated to have negative equity, along with 34.7% of California mortgages and 19% of Colorado mortgages.
So, what is this HARP program?
The Home Affordable Refinance Program, or HARP 2.0, is the new government-sponsored, no appraisal, home mortgage refinance program for underwater home mortgages. The HARP program is available for Fannie Mae and Freddie Mac owned mortgages that were originated prior to June 1, 2009.
The original Home Affordable Refinance Program was limited to 125% loan-to-value. The 2.0 version of the HARP program does not require an appraisal and there is no limit to the loan-to-value.
It is also possible to have reduced documentation for the HARP program. As long as your payment doesn’t increase more than 20%, you will most likely only need a verification of employment instead of providing tax returns and pay stubs.
Another great thing about the HARP program is that the rate is competitive. If you get a 30-year fixed-rate loan you will have a slightly higher than market rate, or a slightly higher fee to get a market rate. However, if you shorten up the term of your loan to a 20-year or shorter amortization, the risk adjustment is waived and you will get a market rate. Fannie Mae and Freddie Mac still have risk-based pricing for lower credit scores, so expect a little higher rate and/or higher fees if you credit score is below 740.
Fannie Mae and Freddie Mac have loosened the credit requirement on the HARP program. This includes waiving the minimum credit score requirement and allowing borrowers with recent bankruptcy or foreclosures to participate. Borrowers do have to be current on their mortgage for the past six months, but can have been 30 days late one time seven to twelve months ago
Bottom line is that the HARP 2.0 program is the first loan program that has the potential to help a large number of homeowners seeking a refinance.