What Was the HARP Program and How Did It Work?

The Home Affordable Refinance Program (HARP) was a government-backed initiative designed to provide a lifeline to homeowners struggling in the aftermath of the 2008 financial crisis. Its primary aim was to help individuals refinance their mortgages, particularly those who found themselves owing more on their homes than the properties were worth. While HARP played a significant role in its time, the program officially expired in December 2018.

Defining the HARP Program

HARP was established in March 2009 by the Federal Housing Finance Agency (FHFA) as a core component of the Obama Administration’s broader Making Home Affordable program. HARP’s central objective was to enable homeowners to refinance their mortgages and secure more favorable terms, even if they had little or no equity in their homes. This was especially crucial for those considered “underwater,” meaning their outstanding mortgage balance exceeded their home’s market value.

The program emerged directly from the severe housing market collapse that followed the 2008 financial crisis. Millions of homeowners experienced a drastic decline in their property values, leading to widespread negative equity. An underwater mortgage creates a challenging situation where homeowners cannot typically refinance through traditional means because lenders are reluctant to lend more than a property’s worth.

HARP was specifically crafted to address this market failure, allowing homeowners to take advantage of lower interest rates without requiring additional mortgage insurance or significant upfront equity. The program aimed to prevent foreclosures by making mortgage payments more affordable, thereby keeping families in their homes. It was administered through the government-sponsored enterprises, Fannie Mae and Freddie Mac, which collectively own or guarantee a substantial portion of the nation’s mortgages.

The program began in April 2009 and underwent several adjustments to expand its reach. These modifications allowed more homeowners to participate over its lifespan during a period of economic instability.

Determining Eligibility Criteria

Homeowners and their mortgages had to satisfy specific requirements to qualify for a HARP refinance. A primary requirement for homeowners was maintaining a strong payment history. Applicants needed to be current on their mortgage payments, meaning they could not have had any 30-day late payments in the past six months. Furthermore, they were allowed no more than one 30-day late payment within the preceding 12 months. The property itself needed to be either the homeowner’s primary residence, a one-to-four-unit investment property, or a single-unit second home.

The mortgage itself also had to meet strict conditions. The loan must have been owned or guaranteed by either Fannie Mae or Freddie Mac. Homeowners could determine this by using online lookup tools provided by both Fannie Mae and Freddie Mac. Additionally, the original loan must have been originated on or before May 31, 2009.

A significant aspect of HARP eligibility revolved around the loan-to-value (LTV) ratio, which compares the outstanding mortgage balance to the home’s current market value. For most of the program, the LTV ratio had to be greater than 80%. For fixed-rate mortgages, HARP 2.0, introduced in late 2011, removed the upper LTV cap entirely. The refinance also had to result in a tangible benefit for the homeowner, such as a lower monthly payment, a shorter loan term, or a switch from an adjustable-rate to a fixed-rate mortgage.

Applying for HARP Refinance

After determining eligibility, homeowners initiated the application process with a participating lender. The application procedure was designed to be streamlined, recognizing the unique financial circumstances of the eligible borrowers. It was not necessary to apply through the original mortgage lender; homeowners could select any HARP-approved lender. Not all lenders offered HARP refinances, so identifying one that did was a crucial first step. Lenders would then guide the homeowner through the necessary documentation requirements.

To process the application, lenders requested various financial documents. Required financial documents included income verification (e.g., pay stubs, W-2s, tax returns) to assess repayment ability. Mortgage statements were also required to provide details on the current loan balance, interest rate, and payment history.

The application and underwriting process for HARP loans featured simplified aspects compared to traditional refinances. For example, an appraisal of the property was not required. The underwriting focused on the borrower’s payment history and the loan’s existing status with Fannie Mae or Freddie Mac, rather than requiring extensive new documentation of equity.