Ever since President Obama proposed a new refinance program in his State of the Union address in January, one that would help "every responsible homeowner," there has been chatter about HARP 3.0, a third version of the Home Affordable Refinance Program originally announced in 2009.
Recently those rumors have intensified, as the Obama administration steps up support for legislative proposals to extend refinancing to more homeowners.
Although no specifics have been given, there is general agreement that HARP 3.0 would allow underwater homeowners to refinance even if their mortgages were not owned or guaranteed by Fannie Mae or Freddie Mac, something that had been a prerequisite with HARP 1.0 and 2.0.
This is a big deal because while 90 percent of loans originated now are guaranteed and/or issued by Fannie or Freddie, that was not the case from 2001 to 2007. Millions of people who got mortgages during that time have a loan in a private-label mortgage security. These mortgages are currently excluded from the HARP 2.0 program, which means that millions of people have been unable to take advantage of the program and refinance at today's record-low mortgage rates.
That would change with HARP 3.0—millions of homeowners could finally get some relief in the form of much lower monthly payments.
While there is widespread agreement that many homeowners could benefit from a HARP 3.0 program, there is no guarantee it would ever pass in Congress and there are many questions about how the program might work:
- When would a loan have to have been originated to be eligible?
- Would the Federal Housing Agency, Fannie and Freddie, or some other independent entity manage the refinances?
- Would homeowners need to have a minimum credit or payment history to participate?
- Would the program apply to all loans no matter how underwater, or would there be some sort of cap such as a maximum loan-to-value ratio?
The answers to these questions will help define precisely which homeowners might benefit from this program, but it is reasonable to assume that those most likely impacted would be underwater homeowners whose loan was placed in a private-label security (not an agency security issued by Fannie, Freddie, or the FHA) and who have a perfect, or near-perfect, payment history over the past year.
Those wondering whether they might be eligible for a HARP program—the 2.0 program now, or the possible 3.0 program in the future—should contact their servicer (the bank where you send your mortgage payments) and ask these questions:
- Who owns my mortgage? (Check here to see if Fannie or Freddie owns your loan.)
- Are you participating in the HARP program?
- If yes, based on your HARP guidelines, am I eligible? (Lender guidelines for HARP vary, so it's best to ask them to compare your situation with their guidelines to see if they match.)
Keep in mind that even if one lender tells you that you're not eligible for HARP, another lender may approve your application, so make sure to shop around. And even if the first lender you contact tells you that you're eligible for HARP, rates and fees on HARP mortgages vary just like they vary for traditional mortgages, so make sure to contact at least one other lender and compare your quotes.
For those who qualify, HARP mortgages could save thousands of dollars per year, so it's worth investing the time to comparison shop before making a decision about something with such large financial consequences.
Erin Lantz is the director of Zillow Mortgage Marketplace.