What Was HARP And What Programs Have Replaced It?
Kevin Graham7-minute read
February 23, 2021
The Home Affordable Refinance Program (HARP) helped homeowners who experienced diminished and negative equity after the 2008 housing and financial crisis to refinance their homes for the purpose of lowering their rate, getting a small monthly payment or changing their term.
Following an economic recovery, the HARP program ended. However, recoveries can be uneven and markets can be up and down. Because of this, there are some who still may owe more on their home than it’s worth. The good news is, today there are replacements for the HARP program and alternatives for other mortgage investors. These options could allow you to refinance.
For context, we’ll go over what HARP was and how it worked. Then we’ll look at the HARP replacement programs available today and how they can help you!
The HARP Program Defined
HARP was a federal program put in place to provide mortgage relief after the 2008 recession in order to help homeowners refinance even if they had an underwater mortgage. To have an underwater mortgage is to owe more on your home loan than the home is actually worth.
Underwater mortgages are problematic because most refinancing options require that you have some minimum equity amount. The HARP program, its alternatives and successors aimed to combat this problem by drastically reducing or removing minimum equity requirements.
Although HARP was targeted at conventional loans backed by Fannie Mae or Freddie Mac, other government mortgage backers had their own relief options. The programs these agencies created are still in existence today. Although HARP officially stopped accepting new applications after December 31, 2018, there are replacement programs from Fannie Mae and Freddie Mac.
How HARP Worked
HARP worked to help homeowners with conventional mortgages who were underwater on the loans to refinance into better terms. The requirements were the following:
- To be eligible for HARP specifically, your loan had to be backed by Fannie Mae or Freddie Mac.
- You had to close on the loan prior to your HARP refinance before May 31, 2009.
- Your loan-to-value ratio (LTV) couldn’t be lower than 80%. This meant you could have no more than 20% equity in your home to qualify under HARP.
- There was often no upper limit for LTV, meaning it usually didn’t matter how much more the loan was than the value of the home. You could often still refinance, although lenders set their own requirements in some cases.
- You had to be current on the payments on your existing loan.
- You could only refinance through HARP once unless you had a loan backed by Fannie Mae that closed between March and May 2009.
HARP was the Federal Housing Finance Agency (FHFA)’s program to allow many Americans who couldn’t qualify based on equity to still be able to refinance and take advantage of the benefits offered by lower interest rates.
HARP Replacement Programs
Although HARP hasn’t officially existed in just under 2 years, today there are a couple of replacement programs introduced by Fannie Mae and Freddie Mac which may be of help to people who are underwater on their mortgage and looking to refinance. We’ll start with Fannie Mae before moving to Freddie Mac’s alternative.
Fannie Mae High LTV Refinance Option
Fannie Mae’s answer to replacing HARP is the High LTV Refinance Option (HIRO). In order to qualify for HIRO, you have to meet the following requirements:
- Your existing loan has to be backed by Fannie Mae.
- Your median FICO® Score has to be 620 or better.
- You can’t have a 30-day late payment in the last 6 months. Only one mortgage payment can be 30 days late in the last year.
- The maximum amount of equity you can have the qualify under this program varies based on the number of units in your property; for a single-family home, you can have no more than 2.99% equity (97.01% LTV), 14.99% equity (86.01% LTV) with 2 units and 19.99% equity (80.01% LTV) with 3 or 4 units through Rocket Mortgage®.
- How the property is occupied also factors in, so you can’t have more than 9.99% equity in a vacation home (90.01% LTV) or 24.99% (75.01% LTV) equity in an investment property.
- Although Fannie Mae sets no maximum debt-to-income ratio (DTI), lenders may set their own requirements. At Rocket Mortgage®, the maximum DTI is anywhere between 45% – 55% depending on how you qualify.
There’s going to be a common theme across all the options we mention from this point forward: These are refinances to lower your rate or change your term to lower your payment. You are not eligible for a cash-out refinance under these programs because there is little to no equity to convert to cash value. With the exception of VA loans, you have to have 20% equity in your home to take cash out.
Freddie Mac Enhanced Relief Refinance Mortgage
Freddie Mac’s HARP replacement is the Enhanced Relief Refinance (FMERR). It has the same goals as Fannie Mae’s option. In order to qualify under this program, you have to meet the following requirements:
- Your loan has to be backed by Freddie Mac.
- Your median FICO® Score has to be 620 or better.
- If you have a single-family primary property, you can have a maximum of 2.99% equity (97.01% LTV). With 2 units, the equity maximum is 14.99% (86.01% LTV). With 3 or 4 units, the maximum equity is 80.01% at Rocket Mortgage®.
- If you’re refinancing a vacation home under this program, your existing equity can’t be more than 9.99% (90.01% LTV). Single-family rental properties should have no more than 85.01% LTV (14.99% equity), while multi-unit investment properties up to 4 units can have no more than 24.99% equity (75.01% LTV).
- Your DTI should be between 45% – 55%, depending on your situation, to qualify through Rocket Mortgage®.
- You can’t have any late mortgage payments in the last 6 months, and you can only have made one 30-day late payment in the last year.
Like the Fannie Mae high LTV option, this one is strictly a rate/term refinance. You can’t take cash out.
Other HARP Alternatives And Refinance Options
If you have a loan backed directly by the government rather than Fannie Mae or Freddie Mac, the HARP replacements mentioned above aren’t for you. Instead, you may be able to look at options from the FHA or VA, depending on the type of loan you have.
FHA Streamline Refinance
In order to do an FHA Streamline refinance, you have to currently be in an FHA loan. The benefits here are that you’re able to get a lower rate, lower principal and interest payment – or, in many cases, you’re able to lower the amount of mortgage insurance premium (MIP) you’re paying in addition to having flexibility around documentation and property valuation.
When looking to qualify, there are a few things you should know:
- 210 days have to pass between the close of your new loan and the close of your previous FHA loan.
- You have to make 6 months’ worth of payments on your existing FHA loan before refinancing.
- If you’re reducing the length of the term, the new combined principal, MIP and interest payment can’t exceed $50 more than your prior combined payment.
- If there’s no term reduction, there are rules on the range of your interest rate after the refinance to be considered for a Streamline.
- LTV is more flexible and streamlines, but every situation is different. Speak with a Home Loan Expert for details.
- If your mortgage is serviced by Rocket Mortgage®, your median FICO® Score needs to be 580 or better. Otherwise, the median qualifying score should be at least 640.
- You can’t have a 30-day late payment in the last 6 months. Only one such payment within the last year is allowed.
The VA Interest Rate Reduction Refinance Loan (IRRRL) is also known as a VA Streamline. It’s for those active-duty service members, reservists, members of the National Guard, veterans and eligible surviving spouses currently in a VA loan and wishing to lower their rate, change their term or go from an ARM to a fixed-rate for example. Taking cash out is a full VA refinance.
The benefit of a VA IRRRL is that you can refinance even if you owe up to 20% more than your home is worth, because the maximum LTV goes up to 120%. The funding fee paid at close or over the life of the loan is only 0.5% of the loan amount as well. Additionally, you may not have to pay this funding fee if you’re an eligible surviving spouse, receiving VA disability or if you’ve returned to active duty after receiving a Purple Heart.
In order to be eligible, you have to meet several requirements:
- You have to currently be in a VA loan.
- If your loan is currently serviced by Rocket Mortgage®, we require a minimum 620 median FICO®. Otherwise, we look for your score to be 700 or better.
- The DTI you need will depend heavily on your situation. A Home Loan Expert can go over how your DTI will affect you.
- Your existing VA loan has to be at least 212 days old, and you have to make 6 months’ worth of payments.
- The VA has a benefits test similar to the FHA Streamline. Speak with a Home Loan Expert to learn more.
The Bottom Line On HARP And Its Replacement Programs
HARP was intended to help those who were underwater on their mortgage (owing more than their home was worth) to refinance in order to take advantage of current interest rates. Although it doesn’t exist anymore, HARP has been replaced by the Fannie Mae High LTV Refinance Option (HIRO) and the Freddie Mac Enhanced Relief Refinance (FMERR). If you don’t have a conventional loan, you may still have options to refinance if you owe more than your home is worth by taking advantage of an FHA Streamline or VA IRRRL.
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