Loan Modification/Refinance Programs: HARP and HAMP

Loan Modification/Refinance Programs: HARP and HAMP

If your home is financially under water or you're having trouble making payments, it may be tempting to call it quits and head for the hills. But this may not be your best option; leaving your home high and dry for the bank to repossess can tank your credit score. If you had any other option by which you could stay in your home, would you take it? Well, let's look at the details behind two government programs that could save your &#% (that spells house, people!).

HARP: Home Affordable Refinance Program

One program that might work for you is the Home Affordable Refinance Program (HARP). This mortgage program allows qualified homeowners to refinance, even if they owe more on the home than the current appraisal value. Some kickers: the home must be backed by Fannie Mae or Freddie Mac, there is currently a 125% loan-to-value (LTV) cap, and having private mortgage insurance (PMI) could break the deal. New rules may soon make the LTV cap and the PMI problems disappear, though, so you might be in luck.

Some people have assumed in the past that their mortgage would not qualify for the HAMP program because they did not think the loan was backed by Fannie or Freddie. Oftentimes, this is a mistake. Fannie and Freddie back a vast majority of all loans because most banks use one or the other to back their loans. So even if your mortgage is marked as an ABC Bank mortgage loan, you just might qualify.

HAMP: Home Affordable Modification Program

The other program that could be a contender is the Home Affordable Modification Program (HAMP). Rather than entirely refinance your mortgage, HAMP encourages lenders to simply modify your existing loan, meaning they extend your loan period or lower your interest rate. This option is often used when: the mortgage is higher than the home's value; you cannot afford your payments; you've defaulted; or you're on the verge of foreclosing.

The kicker here is that lenders are not required to modify your loan. This program is entirely voluntary, but the government has begun to give mortgage companies and banks incentives, making it a little easier than in the past to obtain a modification.

Sign Me Up!

If you think you might qualify for one of these programs, you must contact your current lender. They'll take your loan through the qualification process and let you know if the program can work for you.

One tip: many loans are sold along the way, so if you signed papers at ABC Bank, you might need to contact a different bank. This is almost always the bank to which you write your mortgage check, except in rare circumstances. When in doubt, you can contact the bank where you signed papers, and they'll be able to direct you to the new loan holder.

Even if all outlooks look bleak for saving your home, it may be possible. Check into HARP or HAMP through your current lender; they may be able to cut a deal. If not, it may be possible to pursue other options, like an FHA loan or a short-sale to either save your home or keep your credit score reasonably high.

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Scott Sheldon's picture

Scott Sheldon wrote:

Mon, 08/13/2012 - 00:03 Comment #: 1

The making homes affordable harp 2 refinance program allows homeowners to refinance no matter what their loan to value. In Sonoma County,about 50 miles north of San Francisco, we see borrowers who are financed well way over 200%! this program allows homeowners to refinance so long as the loan being paid off is the first mortgage or the second and first mortgage was purchase money, so the deal can be classified as a refinance. The loan also has to have been originated June 1, 2009 or before and if there is a second mortgage in place, that's okay, but the new lender will have to get a subordination agreement from the second lender to allow a new first mortgage to go into place. Typically, the middle credit score needed for this refinance program is 680, but on a case-by-case basis you can get them done on credit scores as low as 640. The homeowner still has to qualify for the mortgage loan by providing W-2s, Paystubs and bank statements and the debt to income ratio should not exceed 45%. This program is eligible for Fannie Mae and Freddie Mac owned loans only. Fannie Mae transactions usually require a full appraisal report to be completed, although sometimes you can get an appraisal waiver and no appraisal is needed at all. Fannie Mae transactions also have no limits on the amount of closing costs that can be financed. In other words all the closing costs including recurring and nonrecurring can be financed into the new loan amount. Freddie Mac own loans have a $5000 limit on how much closing costs can be financed into the new loan amount. Freddie Mac transactions also almost always provide an appraisal waiver.

Christa Palm's picture

Christa Palm wrote:

Mon, 09/03/2012 - 17:42 Comment #: 2

Scott, thanks for all of the great additional info!

Scott Sheldon's picture

Scott Sheldon wrote:

Tue, 09/04/2012 - 18:49 Comment #: 3

Hi Christa,

Your welcome! Have a great day!