President Barack Obama is set to announce changes to the government’s Home Affordable Refinance Program (HARP) on Monday. The mortgage refinance program, which has been criticized in the past for not impacting the number of homeowners intended, is expected to adjust its requirements so that it will be easier for borrowers to capitalize on current low-interest rates even if they owe much more than their homes are worth.
HARP Refinance Program Struggles to Help Intended Borrowers
The refinance program was created to help an estimated 4 to 5 million Fannie Mae and Freddie Mac mortgage holders secure new mortgages with lower and more stable term options. It helps borrowers who possess underwater mortgages, meaning they owe more on their mortgage than their homes are worth.
However, the program has faced problems, mainly due to current rules, which do not permit borrowers of severely underwater mortgages to participate. Many homeowners have not been able to qualify thanks to the struggling housing market and falling home values, resulting in an underwhelming 890,000 Americans utilizing the program to date.
With HARP set to expire on June 30, 2012, the government had to act fast to help more homeowners take advantage of mortgage rates that are hovering at record lows. As a result, the refinance program increased the percentage a homeowner can owe on their mortgage to qualify for HARP.
Homeowners with Underwater Mortgages Can Now Refinance
According to HARP’s new rules, homeowners who owe more than 125 percent of the market value of their homes will be able to obtain new loans. For example, borrowers who carry a $125,000 mortgage balance and a home which is now worth less than $100,000, will be able to refinance as long as they meet other criteria.
With the new expansion in guidelines, the refinance program expects to reach more homeowners than ever before. “We know there are many homeowners who are eligible to refinance under HARP and those are the borrowers we want to reach,” expressed Edward DeMarco, acting director of the Federal Housing Finance Agency (FHFA.)
Some believe the program’s efforts at aiding the mass of underwater mortgages may be fruitless, as borrowers will still be expected to remain current on their mortgages and meet other criteria to qualify for a new loan.
Fannie Mae and Freddie Mac are also to make additional changes to help homeowners of underwater mortgages better qualify and afford new loans, including reducing risk-based fees. Additionally, the government is looking to extend HARP through the end of 2013 to provide borrowers with more time to qualify.
