The Truth About HARP

Most Americans looking to refinance in the last four years have probably at least heard of the Home Affordable Refinance Program, or HARP.  HARP is one of those rare government programs that has actually been wildly successful in doing what lawmakers intended, which, in this case, is helping underwater homeowners refinance their mortgages to reap the savings of lower interest rates.

Indeed, millions of Americans have benefitted from HARP by being able to secure lower interest rate mortgages – something that was once next to impossible if you owed more on your mortgage than your home was worth.

Nonetheless, there are still some odd misconceptions about the program that are worth clearing up so that more Americans can benefit from lower interest rates. HARP is often misunderstood by borrowers and many think there is some kind of ‘catch’ or damning fine print that will end up hurting them in the long run.


HARP to the Rescue

HARP was passed in March of 2009 in the depths of the financial crisis. Real estate prices had collapsed in the previous two years, leaving many homeowners with more mortgage debt than their homes were worth. This made it difficult not only to sell a home, but also to refinance to take advantage of falling interest rates.

Several iterations of HARP were passed, with each becoming progressively more expansive in who could qualify for government-backed refinancing. The original version of the program provided refinancing assistance to homeowners with a loan-to-value(LVT) ratio of no greater than 105 percent, meaning a mortgage of $105,000 would need to be backed by a home worth no less than $100,000. The LVT ratio was later changed to a more lenient 125 percent, and eventually the cap was taken off entirely.

Now the main requirement to qualify for HARP is being current on your mortgage payments.


Misconceptions: Not One, but Many

Despite the gradual expansion of HARP to include millions of American borrowers, there are at least six misconceptions that continue to float around in the financial ether:


Misconception #1: To qualify for HARP, you need to be seriously delinquent on your mortgage.

Um, no. HARP is only for borrowers who are current on their mortgage payments but want to refinance. HARP is often confused with HAMP, the Home Affordable Mortgage Program, which targets borrowers who are behind on their payments and in danger of foreclosure.


Misconception #2: HARP only applies to primary residences.

This is no longer true. HARP was amended in 2012 to include secondary residences and investment properties.


Misconception #3: HARP loans have too many upfront fees.

The HARP website explicitly states that HARP applications are free and HARP loans do not have any upfront fees.


Misconception #4: HARP lenders require homeowners to surrender their property’s title.

This persistent myth couldn’t be more wrong. HARP lenders cannot require borrowers to surrender a property’s title as a condition of the mortgage.


Misconception #5: HARP loans have huge closing costs that must be paid on closing.

Closing costs on HARP loans are very modest and can actually be rolled up into the mortgage instead of being paid as a lump sum.


Misconception #6: HARP is a scam.

This is the granddaddy of all HARP misconceptions. Some low-information borrowers simply think that HARP is too good to be true.

In a way, their skepticism is justified: how is it possible to get a vastly lower mortgage rate without paying all sorts of penalties? And why would a lender agree to refinance an underwater mortgage in the first place?

The answer is simple: the US government is contributing a huge amount of resources to ensure the program helps as many Americans as possible.

HARP is a legitimate and hugely successful program that has helped millions of homeowners already. Fannie Mae estimates that participating homeowners are saving $250 a month on average. The President himself is on record saying that HARP saves $3000 per year for the average eligible borrower.


Get Help with HARP

HARP is real and HARP can help. Underwater borrowers should take advantage of the program while interest rates are low and home prices remain subdued. The program is set to expire in 2015.