The Home Affordable Refinance Program (HARP) was a federal initiative created to assist homeowners who were struggling with underwater mortgages following the 2008 financial crisis. Although the program concluded at the end of 2018, understanding its structure and impact can guide current homeowners in seeking similar benefits.
Key Concepts of HARP
- Program Overview: HARP enabled homeowners to refinance their homes even if the mortgage surpassed the property’s value.
- Post-Crisis Relief: Offered in response to the 2008 financial crisis.
- Program Conclusion: HARP ended in December 2018, but alternatives still exist for homeowners facing similar financial challenges.
The Functioning of HARP
Eligibility and Criteria
HARP was specifically designed for mortgages backed by either Freddie Mac or Fannie Mae. Home loans eligible for HARP had to be sold to these entities before May 31, 2009.
The primary aim of HARP was to salvage homeowners from escalating negative equity by creating affordable and stable mortgage solutions. Qualifying homeowners were required to meet the following conditions:
- Current on Mortgage Payments: Homeowners were expected to have a solid repayment record without defaults.
- Residency: The property in question had to be in favorable condition, and the homeowner could not have abandoned it.
- Refinance Opportunities: Homeowners were free to refinance through any participating lender, not restricted to just their current lender.
Historical Context
The financial crisis of 2008 severely impacted real estate values across the U.S., trapping many homeowners in underwater mortgages—owing more than the current value of their homes. The federal government introduced HARP in 2009 intending to slow foreclosures and offer a lifeline to borrowers mauled by subprime lending practices.
Program Ending
Though HARP concluded on December 31, 2018, it paved the way for future homeowner relief initiatives. Borrowers today still have options if they find themselves in similar situations.
HARP vs. The Home Affordable Modification Program (HAMP)
Another significant initiative introduced to mitigate foreclosures was the Home Affordable Modification Program (HAMP). While HARP refinances targeted homeowners maintaining current payments on upside-down mortgages, HAMP was for borrowers facing or having already defaulted on loans.
Distinctions
- Eligibility Differences: HAMP exclusively applied to homeowners who had defaulted or were on the brink of default.
- Loan Modification Requirements: Borrowers had to work through their existing lenders, who varied in their qualification criteria.
- Credit and Tax Implications: Modifications might negatively influence future creditworthiness and incur tax liabilities if a portion of the debt was forgiven.
Overall, both HARP and HAMP offered critical lifelines during financial emergencies, although they catered to different stages of mortgage distress.
Related Terms: Freddie Mac, Fannie Mae, financial crisis, subprime lending, mortgage modification, IRS.
References
- Federal Housing Finance Agency. “Home Affordable Refinance Program (HARP)”.
- U.S. Treasury Department. “Making Home Affordable (MHA)”.
