Do you owe more to your house than it’s worth? Having negative equity in your home can be disheartening. After all, you have worked so hard to have a place of your own, and then you feel like your payments aren’t even going anywhere.
Oftentimes, people end up in these situations due to high interest rates on their home loans.
Previously, the solution that many Americans took advantage of to get out from under their high interest rate was applying for a HARP loan. The HARP loan, or home affordable refinance program loan, began in 2009 after home values decreased during the 2008 recession.
The HARP loan allowed homeowners to refinance their homes at lower interest rates, making their mortgage payments more affordable and getting them out underwater. Though the program ended in 2018, more than 3.4 million Americans took advantage of the HARP loan while it was in existence. You can learn more about the history of the HARP loan here.
Eligibility for a HARP loan
The HARP loan was targeted at homeowners that had a loan-to-value ratio of at least 80%. These homeowners had a hard time finding traditional refinancing because of the lack of equity in their home. Traditional refinancing options have various requirements, but most of them require you to have at least some kind of equity. HARP allowed homeowners to circumvent this requirement.
Though homeowners didn’t have to have equity in their home, there were some other requirements to qualify, including:
- Having a Freddie Mac or Fannie Mae mortgage that closed on or before May 31, 2009
- The original loan must have had a loan-to-value (LTV) ratio of at least 80%
- The borrower could not be delinquent on their mortgage payments with limits to one late payment in the previous 12 months, and none in the past six months
Surprisingly, there was no minimum credit score required. These requirements made it easy for this loan to help millions of Americans and were a lifesaver for many until its ending.
Why and how did the HARP program end?
The HARP program was supposed to end in 2016 but was extended through 2018, where it expired on December 31st. The main reason for it to come to an end was that fewer and fewer people nationwide qualified for the program.
During 2018, before the HARP program expired, it was estimated that fewer than 38,000 homeowners qualified. Those homeowners only resided in 10 states. With not enough people who needed assistance, there was no longer a need for the HARP program.
Of course, things have changed since 2018, and with those changes, new programs have replaced HARP.
Programs that replaced the HARP loan
1. Fannie Mae High LTV Refinance Option (HIRO)
The Fannie Mae High LTV Refinance Option, or HIRO, provides refinancing to existing Fannie Mae mortgagers who are paying on time but have a high loan to value ratio that doesn’t qualify for traditional refinancing options. Fannie Mae requires that the borrowers must benefit from the refinancing by either:
- Reduced principle and interest payments
- Shorter amortization term
- Lower interest rate
- A more stable loan such as moving from adjustable to fixed-rate interest rates
Features of this program include:
- Transferable mortgage insurance
- Simplified documentation requirements for easier application
- Various underwriter options
How to qualify for HIRO
In addition to being in a high LTV situation, there are a few other requirements for the HIRO loan, including:
- Having an existing Fannie Mae mortgage closed on or after October 1st, 2017.
- The loan must be 15 months old.
- Current with their payments with no 30-day late payments in the most recent six months, and no more than one 30-day late payment in the past 12 months. Any history of payments more than 30 days late will disqualify you.
- The mortgage must not have been previously delivered as a DU Refi Plus™ or Refi Plus™ mortgage.
Interestingly, the mortgage may be refinanced more than once under this program as long as all the requirements are still met.
Freddie Mac Enhanced Relief Refinance Mortgage (FMERR)
Like the HIRO loan, the Freddie Mac Enhanced Relief Refinance Mortgage, or FMERR, offers a refinancing option for existing Freddie Mac mortgagers who are on time with their payments but have a high LTV ratio that doesn’t qualify for traditional refinancing options.
Features of this program include:
- Conventional 15-, 20-, or 30-year fixed-rate mortgage are eligible
- No program expiration date
- All occupancy types are eligible
- Lenders do not have to comply with standard waiting periods after derogatory events.
How to qualify for FMERR?
In addition to the loan being a pre-existing Freddie Mac mortgage, you must have these qualifications:
- It must be seasoned for at least 15 months.
- For adjustable-rate mortgages, the maximum loan to value ratio is 105%
- You must have applied for your mortgage after November 1, 2018
HARP vs. the alternatives
Though it seems that these alternatives have similar requirements as the HARP loan, there are actually a few differences. For one, HARP was only able to be used once. These programs can be used for an unlimited amount of time. However, keep in mind that you will not be eligible for either of these programs if you have used HARP.
In addition, the loan age requirement didn’t exist with the HARP loan. With HIRO and FMERR, the loan must be at least 15 months old. The age requirement is actually a good thing because it prevents loan churning. Loan churning is when a lender encourages multiple refinances to make more money, which isn’t always in the borrower’s best interest.
Similar to HARP, there are no LTV maximums for HIRO or FMERR. Though these alternatives are more based on the LTV ratio and have different minimums.
How to apply for HIRO or FMERR?
There is a relatively easy process to apply to HIRO and FMERR. However, you’ll want to make sure you prepare and do your research. Here are our recommended steps to applying:
- First, contact the home-buying and refinancing specialists at Hero Home Program. They will be able to either
- Assist you directly or
- Refer you to a vendor who offers discounted rates for the following steps.
- Determine if your loan is Fannie Mae or Freddie Mac. You can do this by looking at your loan paperwork or by using the loan lookup tool on each of their websites.
- Get an appraisal of how much your home is worth.
- Determine how much you owe on the house through your lender
- Calculate your LTV.
- Use the HIRO and FMERR eligibility guides to determine if you qualify based on your LTV.
HIRO and FMERR are great alternatives to HARP
Overall, HIRO and FMERR are great alternatives to HARP. They provide an opportunity for those who normally wouldn’t qualify for refinancing a way out from negative equity. If these programs sound like something you would like to learn more about, reach out today.