Douglas Keister/Getty Images

For nearly ten years, the Home Affordable Refinance Program (HARP) helped underwater homeowners refinance to lower rates, save money and build equity in their homes.

Although the HARP mortgage program ended in 2018, two new federally-backed initiatives for high loan-to-value (LTV) ratio mortgages offer homeowners similar benefits with a few changes.

Background on HARP

When real estate values fall, homeowners with little equity in their homes can find themselves underwater–owing more than on the mortgage than the home is worth. In this case, refinancing or selling a home can be next to impossible without coming up with a pile of cash, and that’s exactly what happened to millions of homeowners during the housing crisis.

HARP was created in 2009 to give borrowers who were current on their mortgages but had little or negative equity an opportunity to refinance at lower rates.

The HARP mortgage program was modified over the years and eventually enabled homeowners to refinance up to 125 percent of the value of their homes without primary mortgage insurance.

“HARP had its purpose, and it worked,” says Frank Ruzicka, senior loan officer at Guild Mortgage in Chesterfield, Missouri. “But I don’t see much demand anymore. There aren’t many people coming in owning more than what their home is worth.”

After being extended twice over the years, HARP expired on Dec. 31, 2018.

New high LTV programs fill the gap

While there was a slight uptick in the number of homeowners with negative equity in the fourth quarter of 2018, only 4.2 percent — or 2.2 million — of these mortgaged properties were underwater, according to data from CoreLogic. That’s down significantly from the peak of 26 percent in 2009.

Of these loans still underwater, many were likely modified or refinanced with a HARP mortgage, and are working their way into positive territory.

Today, two new federal programs offer a permanent refinance solution for people who end up underwater in their mortgages.

These programs, Fannie Mae’s High LTV Refinance Option and Freddie Mac’s Enhanced Relief Refinance, are essentially an extension of HARP but with different names and slightly different requirements. They offer benefits including reduced monthly payments, lower interest rates, shorter loan terms and the ability to convert an adjustable rate to a fixed-rate mortgage.

Lowering your interest rate and monthly payments not only saves you money, but also enables you to build equity faster. Use Bankrate’s refinance calculator to see how much you could save with a refinance.

To be eligible for the new programs, borrowers must have:

  • A Fannie Mae or Freddie Mac mortgage note date on or after Oct. 1, 2017.
  • Current mortgage payments with no 30-day delinquencies in the past six months.
  • No more than one 30-day delinquency in the past 12 months.
  • No delinquent payments more than 30 days past due.

Key differences between HARP and the new programs

There are several key differences between HARP and the new high LTV programs.

While HARP only allowed homeowners to use the program once, these new high LTV programs don’t limit how many times someone can use them. If you already refinanced with a HARP mortgage, though, you’re ineligible to use the new high LTV programs, according to both agencies’ guidelines.

Additionally, there is a loan age requirement for the new programs that didn’t exist under HARP. Fannie Mae and Freddie Mac require underwater loans to be at least 15 months old before they can be refinanced. This enables lenders to get a clearer picture of the borrower’s payment history and reduces loan churning, a predatory lending practice in which a lender encourages a borrower to repeatedly refinance a loan, paying additional fees and interest, without a tangible benefit to the borrower.

The new loan programs are based on the LTV ratio, which is calculated by dividing the remaining loan balance by the property’s appraised value, and is expressed as a percentage. Both programs require a minimum LTV ratio of 97.01 percent for a single-family home — higher than the 80 percent minimum LTV required by HARP. Like HARP, there are no LTV maximums for these refinance programs.

Bottom line

With interest rates still near historic lows, you might benefit by refinancing with one of these products if you’re upside down in your mortgage.

To see if you’re eligible for one of these programs, follow these steps:

Fannie Mae
Call (800) 2FANNIE from 8 a.m. to 8 p.m. ET, or use Fannie Mae’s online loan lookup tool. To get more information about foreclosure assistance options, visit Fannie Mae’s Know Your Options page.

Freddie Mac

Call (800) FREDDIE 8 a.m. to 8 p.m. EST, or use Freddie Mac’s online mortgage locator tool. For more information about foreclosure help, visit Freddie Mac’s My Home page.