What Is the Home Affordable Refinance Program (HARP)?

Homeowners who struggled with declining property values after the 2008 financial crisis often found refinancing impossible due to insufficient equity. To address this, the federal government introduced the Home Affordable Refinance Program (HARP), which helped borrowers secure better mortgage terms even if their homes had lost value.

HARP officially ended in 2018, but understanding how it worked provides insight into refinancing options for homeowners facing similar challenges.

Eligibility Criteria

HARP was available only to homeowners with mortgages backed by Fannie Mae or Freddie Mac, excluding loans held by private lenders or insured by government agencies like the FHA, VA, or USDA. The mortgage had to have been sold to Fannie Mae or Freddie Mac on or before May 31, 2009, preventing newer loans from qualifying.

Borrowers needed a strong record of timely payments, with no payments over 30 days late in the past six months and no more than one late payment in the prior 12 months. This ensured the program assisted financially responsible homeowners affected by market conditions rather than personal financial mismanagement.

The refinance had to provide a tangible benefit, such as a lower interest rate, reduced monthly payments, or a shift from an adjustable-rate mortgage to a fixed-rate loan. Cash-out refinancing was not allowed.

Loan-to-Value Ratios

HARP was designed for homeowners with high loan-to-value (LTV) ratios who were otherwise unable to refinance. Initially, the program capped LTV at 125%, but in 2012, the federal government removed this cap for fixed-rate loans, allowing homeowners with severely depreciated properties to qualify.

For example, a homeowner with a $200,000 mortgage on a home now valued at $120,000 (an LTV of 167%) could still refinance. Adjustable-rate mortgages (ARMs) remained subject to a 105% LTV cap due to their higher risk.

Even without a maximum LTV for fixed-rate loans, lenders still evaluated creditworthiness and payment history. In many cases, HARP eliminated the need for a new property appraisal, relying on automated valuation models. However, borrowers with extremely high LTV ratios often faced closer scrutiny to ensure the refinance would improve loan performance.

Costs and Fees

Refinancing through HARP involved standard closing costs, including origination fees, title insurance, and recording charges. Loan origination fees typically ranged from 0.5% to 1% of the loan amount, while title search and insurance costs could add another $500 to $1,500, depending on the state and loan size.

Some borrowers encountered risk-based pricing adjustments (LLPAs), which Fannie Mae and Freddie Mac used to offset credit risks. Initially, these fees could significantly increase costs for borrowers with lower credit scores or higher LTV ratios. However, in 2012, the Federal Housing Finance Agency (FHFA) eliminated LLPAs for HARP loans with terms of 20 years or less, making shorter-term refinances more attractive. For 30-year loans, LLPAs were capped at 0.75%, reducing costs for distressed homeowners.

Some lenders offered “no-closing-cost” refinances, where fees were rolled into the loan balance or offset by a slightly higher interest rate. While this reduced upfront expenses, it often resulted in higher overall borrowing costs. Shopping around was essential, as lenders had discretion in setting fees and interest rates within FHFA guidelines.

Mortgage Insurance Rules

HARP allowed borrowers to retain their original private mortgage insurance (PMI) or lender-paid mortgage insurance (LPMI), preventing additional costs due to refinancing. This was particularly beneficial for homeowners who had purchased homes with minimal down payments and were still paying PMI when property values declined.

For loans with PMI, lenders were required to transfer the existing policy to the refinanced mortgage. Some mortgage insurers imposed additional conditions or limited coverage transfers between lenders. Borrowers who refinanced with their original servicer often faced fewer obstacles, as the insurer had already underwritten the policy for that institution.

Lender-paid mortgage insurance added complexity since the cost was built into the interest rate rather than a separate premium. While HARP allowed these loans to be refinanced, the new lender had to agree to continue covering the insurance expense, which sometimes resulted in less favorable rate adjustments.

Application Steps

Applying for HARP required borrowers to meet program requirements while working with lenders to secure favorable terms. Unlike traditional refinancing, HARP applications often involved additional verification steps. Borrowers had to gather financial documents, compare lender offerings, and complete underwriting procedures before finalizing their new loan terms.

Lenders required recent pay stubs, tax returns, and mortgage statements to verify income stability and loan details. Homeowners also needed to confirm that their mortgage was owned by Fannie Mae or Freddie Mac, which could be done through online lookup tools. While HARP did not impose a minimum credit score requirement, lenders set their own underwriting standards.

Many homeowners refinanced with their existing mortgage servicer to streamline the process, but HARP allowed borrowers to shop for better rates and terms. Some lenders specialized in HARP refinances and offered more competitive pricing, making it beneficial to compare multiple offers. Once a lender was chosen, the application proceeded through underwriting, where automated valuation models often replaced traditional appraisals. After finalizing loan terms and closing, borrowers began making payments under their new mortgage structure, often benefiting from lower interest rates or more stable loan terms.