One of the major sources of mortgage funding in the U.S. is Freddie Mac, a federal-government-sponsored enterprise. Freddie Mac buys mortgages from various lenders across the country, which allows the lenders to keep making additional mortgages. Freddie Mac offers the Home Affordable Refinance Program (HARP), which helps homeowners whose property value has declined secure a refinanced mortgage.
HARP is designed to help you get a more favorable mortgage through a refinance, even though you have little or no equity in your home. The new HARP mortgage must provide you with at least one of the following benefits: a lower interest rate, a lower monthly payment, a fixed interest rate instead of an adjustable one, or reduction in the length of the loan. Of course, the resulting new loan payment must be also one that you can demonstrate that you can afford to pay.
Your mortgage must be owned by Freddie Mac since May 31, 2009 or earlier. Your property can be a condo, an owner-occupied building with one to four units or an investment property of one to four units. Your current mortgage balance must be greater than 80 percent of your property's current value, as determined by your HARP lender. You must be current on your mortgage payments and have not been over 30 days late within the last six months or more than once in the last 12 months.
Applying for HARP
You must apply for HARP directly through a participating lender. Freddie Mac does not deal directly with homeowners. You should first see if your current lender, also known as the servicing agent, participates. If so, they can expedite the process. If needed or by your choice, you can use any participating lender. The lender may be able to use a computerized valuation tool instead of a new regular appraisal. You will have to provide current and recent financial information such as income, expenses and taxes.
The lender you choose participates on a voluntary basis; Freddie Mac does not mandate participation. The lender also can have additional eligibility requirements. HARP will not lower or eliminate any of your mortgage principal balance. If your current mortgage does not require mortgage insurance, the new HARP mortgage will not require it either. If you qualify for and choose a fixed-rate HARP mortgage, there is no maximum on the resulting loan-to-value ratio, but an adjustable-rate HARP mortgage is limited to 105 percent of your property's value.
Kerry Zias has been a strategic business consultant and college instructor of business administration courses since 1990. He has taught courses and performed professional consulting work in the areas of marketing, management, business start-ups, entrepreneurship, real estate, sales psychology and performance, business communications, business law and political/governmental relations. Zias holds a Master of Business Administration in marketing from National University.