EDU Articles

Understanding the Home Affordable Refinance Program (HARP)

The Home Affordable Refinance Program (HARP) was an instrumental initiative introduced in 2009 by the Federal Housing Finance Agency (FHFA) to offer a refinancing lifeline to homeowners struggling with 'underwater' mortgages. An underwater mortgage is one where homeowners owe more on the home loan than the home's fair market value. This situation was a consequence of the 2008 housing bubble crash, which led to substantial property devaluation and left numerous Americans grappling with hefty mortgages and depreciated home values.

Aims and Mechanism of HARP

HARP was specifically designed to assist these homeowners and promote economic stability in the aftermath of the financial crisis. The program was uniquely structured to enable homeowners with mortgages owned by Fannie Mae and Freddie Mac to refinance their loans. By refinancing, borrowers could potentially secure lower loan payment amounts, more favorable interest rates, or reduced loan terms, thus providing significant financial relief.

Eligibility and Prerequisites for HARP

To qualify for the HARP program, homeowners needed to demonstrate a consistent history of timely loan payments. Additionally, their mortgage had to be owned by either Fannie Mae or Freddie Mac, two government-sponsored enterprises that purchase mortgages from lending institutions to foster liquidity in the banking system and stimulate further lending.

Impact on the Housing Market

HARP was an essential pillar of the economic recovery strategy post the 2008 financial crisis. By offering refinancing opportunities, it mitigated the risk of loan defaults, proactively addressing a key factor that contributed to the crisis. Importantly, by helping homeowners to manage their mortgages more effectively, HARP contributed to broader financial stability and recovery.

Alternatives to HARP

Although HARP ceased operations at the end of 2018, homeowners in need of financial relief have other avenues available. The Home Affordable Modification Program (HAMP), for instance, offered a similar loan to those at risk of foreclosure, although it ended in 2016.

The legacy of the Home Affordable Refinance Program (HARP) continues to resonate in the housing market. As a testament to innovative and proactive economic strategies, HARP demonstrated that a targeted and well-managed program can provide vital support to homeowners in financial distress and contribute to broader economic recovery and resilience.

Summary:
In 2009 the Federal Housing Finance Agency (FHFA) commissioned the HARP program to help Americans upside-down on mortgages to get approved for mortgage refinancing.

This is only available to people whose mortgages are already owned by Freddie Mae and Freddie Mac. Many Americans find themselves upside-down, or underwater, on their home mortgages, particularly after the housing bubble popped in 2008. To be underwater means that there is more owed on the loan than the home can serve as collateral for.

This can happen if a home loses a significant portion of its fair market value. To help consumers, but also the system itself, the HARP program was started in 2009 to help people get approved for refinancing. Refinancing arrangements can lower the loan payment amount, interest rate, or length of time that payments must be made.

The conditions are that an individual must have a history of making loan payments on time and that their mortgage must be owned by Fannie Mae or Freddie Mac. Fannie Mae and Freddie Mac buy approved mortgages from banks to help give banks liquidity to make more loans.

The risk of making the loan was no longer the bank’s, effectively, and this is a large part of the reason that many bad loans were made and so many people defaulted on them, resulting in the crash of many financial pillars that were being partially held up by the Collateralized Mortgage Obligations, which are mortgage cash flows sold off as securities.

If a homeowner has already defaulted and is in danger of foreclosure, they could try to get a similar loan from the Home Affordable Modification Program (HAMP), but that program has a sunset date of December 31, 2016.