Quick look: The federal government’s Home Affordable Refinancing Program (HARP) allows certain homeowners to refinance into a lower interest rate, even if they are underwater in their mortgages. The program was recently changed to make refinancing available to an even larger pool of homeowners. In a written statement released this week, Bank of America said it will offer refinancing under the expanded version of HARP in 2012. This could impact a large number of homeowners.
Refinancing Under HARP: A Brief History
On Monday, President Obama and his housing officials announced a modification to the Home Affordable Refinancing Program, or HARP. The program was first launched in 2009, in the wake of our nation’s housing meltdown. It is designed to make mortgage refinancing available to homeowners who probably wouldn’t qualify otherwise — including those who are underwater in their mortgages.
[Definition: “Underwater” homeowners owe more on their mortgages than their homes are currently worth. People end up in this situation after a significant drop in property values. It is also referred to as being “upside down” in a loan.]
Under the original version of HARP, homeowners could qualify even if they were slightly underwater in their mortgage loans. The program had a cap in place at 125% loan-to-value (LTV). This meant that as long as the homeowner’s mortgage did not account for more than 125% of the home’s value, they might be eligible for refinancing under HARP.
Another key requirement: The borrower’s mortgage had to be owned or guaranteed by Fannie Mae or Freddie Mac. It also must have been transferred to Fannie / Freddie on or before May 31, 2009.
What’s Changing for 2012
A new version of HARP was announced on October 24, 2011. It has since been dubbed “HARP 2.0,” to signify the second major version of the program. Among other things, the changes have effectively removed the 125% LTV restriction. This means that homeowners who are deeply underwater in their mortgages could still qualify for refinancing under the government’s HARP program (where they couldn’t before).
The Fannie / Freddie requirement is still in place, however. The borrower’s home loan must be owned by either Fannie Mae or Freddie Mac. Homeowners can use mortgage “look-up tools” to determine if Fannie or Freddie owns their loan.
Homeowners can also contact their current lender or loan servicer, to find out if the loan is backed by Fannie or Freddie. It’s a key requirement for HARP 2.0 and will likely remain in place throughout 2012.
The date restriction will also remain in place for 2012. The homeowner’s current mortgage must have been transferred to Fannie Mae or Freddie Mac no later than May 31, 2009.
The new version of HARP is scheduled to take effect in December 2011. But most lenders probably won’t start offering it until the first quarter of 2012, due to the holiday timing.
Bank of America to Participate in HARP 2.0
In a written statement released earlier this week, Bank of America officials said they will participate in the expanded version of HARP. This means Bank of America could offer mortgage refinancing to homeowners who did not qualify under the previous guidelines for loan-to-value ratio.
In other words, borrowers with a mortgage balance that exceeds 125% of their property value could refinance through Bank of America (as long as their mortgage is owned or guaranteed by Fannie / Freddie).
Bank of America is the second-largest mortgage lender in the United States. So this could affect a large number of homeowners in 2012. Bank of America states that it has helped more than 250,000 homeowners refinance through HARP, since the program first began in 2009. This is more than any other lender in the United States.
According to Jumana Bauwens, spokesperson for Bank of America:
“Despite ongoing economic challenges, nearly 90 percent of our customers remain current on their mortgage. HARP helps these homeowners who remain current on their mortgage with options to lower their monthly payment when, otherwise, conventional funding options are limited.”
Bank of America has suggested they will participate in the government refinancing program throughout 2012. The HARP program itself has been extended into 2013, though an exact expiration date has not yet been given.
Underwater Homeowners Still a Roadblock to Recovery
Underwater homeowners and foreclosure inventories are two of the biggest impediments to housing recovery. Unusually high foreclosure inventories disrupt the balance of supply and demand, putting downward pressure on home prices. This makes would-be home buyers reluctant to buy a house. Underwater homeowners contribute to the problem, because many of them will end up in foreclosure.
HARP 2.0 will help underwater homeowners who are current on their mortgage payments, but it does nothing for those who have fallen behind on their payments. Thus, it doesn’t address one of the core problems in the housing market, the at-risk homeowners who will likely end up in foreclosure. This is a common criticism of the program.
According to CoreLogic, more than 10 million homeowners were underwater in their mortgages at the end of the second quarter of 2011. Most of those people (75%) have interest rates above current market rates. So a large portion of them could be excellent candidates for refinancing. But the program is limited to people who are current on their mortgage payments. People who have fallen behind on their mortgage payments — for whatever reason — are ineligible for refinancing under HARP 2.0.
Note: This article contains information about Bank of America, mortgage refinancing and the government’s HARP program. The statements regarding Bank of America came from a written statement they released. We make no other claims or assertions about the mortgage-refinance requirements used by Bank of America, or any other mortgage lender. The only way to find out if you’re qualified for refinancing is to apply for a loan.
Brandon Cornett is a veteran real estate market analyst, reporter, and creator of the Home Buying Institute. He has been covering the U.S. real estate market for more than 15 years. About the author