Homeowners with a high loan-to-value or who are underwater and owe more on their mortgage than their home is worth have had a new, non-HARP refinance option since October 2017. Fannie Mae's High Loan-to-Value Refinance Option and Freddie Mac's Enhanced Relief Refinance replaced the Home Affordable Refinance Program (HARP) when it ended, but the two programs ran concurrently for more than a year. Almost 3.5 million homeowners refinanced with HARP since the program was introduced, according to the Federal Housing Finance Agency, which says another 38,000 homeowners remained eligible for HARP when the program came to a close in late 2018.
Note: The HARP program expired on December 31, 2018. These Streamline Refinance programs replaced it. However, these programs were suspended by Fannie Mae and Freddie Mac on June 30, 2021. According to the GSEs, these were put on hold "due to extremely low volume and the impact of the Revised General QM Rule" but that Fannie and Freddie will be working with their regulator (FHFA) to determine how to modify the terms of these programs and make them available again. That's the bad news; the good news is that strongly rising home prices have left very few homeowners in low- or no-equity positions, so they are likely eligible for traditional refinances.
The programs were put in place with the best of intentions. "We wanted to make sure that when HARP expired there would be a program in place to help people who have less than five percent equity and can't qualify for a standard refinance," says Alan Hitchcock, director of product development for Freddie Mac in Washington, D.C.
According to CoreLogic , a global provider of property data, approximately 1.1 million households were underwater on their mortgages in the fourth quarter of 2021, which represents 2.1 percent of all homes with a mortgage. In addition, many tens or even hundreds of thousands of borrowers will have less than five percent in home equity, which typically prevents them from qualifying for a refinance.
"While it's not clear that the universe of people who will take advantage of this program is that large, the principal is that allowing people to refinance can keep them in their homes and prevent a foreclosure," A.W. Pickel, president of the Midwestern division of AmCap Mortgage in Kansas City, Mo. "It can help in some markets where people haven't experienced the property appreciation of other markets, so they are still at a high loan-to-value and have a mortgage with a higher interest rate."
Hitchcock says that borrowers who have little home equity are at risk from one unpredictable event, such as an illness or a job loss, when they can't refinance.
"This program should make it easier for borrowers stay in their homes and to stay current on their mortgage payments," he says.
Streamline refinance programs differ from HARP
The biggest change of the new streamline refinance programs is that they don't have an expiration date, says Keith Gumbinger, vice president of HSH.com.
"It should be a comfort to borrowers who are exposed to the vagaries of the market that they are protected from future downturns, especially if they bought a home at the height of the market," says Gumbinger.
Hitchcock says that the new streamline refinance is meant to be a "forever program" to help homeowners in all kinds of market cycles.
A second difference between the new programs and HARP is that there is no requirement for a particular start date for the loan you are refinancing.
"HARP was limited to borrowers who had taken out their loan before June 1, 2009, and this is for anyone with an underwater loan regardless of when they took it out," says Gumbinger.
Pickel says that another difference from HARP and a benefit to borrowers is that they can use the new refinance programs more than once. However, borrowers cannot refinance a loan they refinanced under HARP with this new program.
Streamline Refinance program requirements
Similar to HARP, borrowers must benefit from the refinance in at least one way to qualify for the program, such as:
- A lower monthly principal and interest payment
- A lower interest rate
- A shorter loan term
- A more stable mortgage, such as switching from an adjustable rate mortgage to a fixed-rate loan
Additionally, borrowers must be current on their mortgage payments with no 30-day delinquencies in the most recent six months and no more than one 30-day delinquency in the past 12 months. Only existing Fannie Mae loans can be refinanced into a new Fannie Mae loan. That rule is the same for Freddie Mac loans.
"We also have a loan-to-value minimum that varies according to whether the borrowers own one or more units in their residence," says Hitchcock. "For a one-unit residence, the minimum loan-to-value would be 95.01 percent or higher. If they have five percent or more in equity the borrowers will have to use a different refinance program."
Similar to HARP, the streamline refinance programs do not have a minimum credit score requirement, a maximum debt-to-income ratio or a maximum loan-to-value and an appraisal won't be required, says Hitchcock.
"There are borrowers out there who still have mortgages with interest rates in the five or six percent range who could benefit from this program," says Gumbinger. "And it could help people if there's another economic downturn because they could refinance into another 30-year loan to extend their repayment period. Their loan balance would be lower, too, depending on how long they have owned their home."
Gumbinger says this is a niche program aimed at property values in areas that may never recover completely from the housing crisis, but it also provides support for homeowners in case of problems in the future.
"This is a good program that gives people who are making their mortgage payments an opportunity to lower their housing costs," says Gumbinger.
Still no help for us that don't have a Fannie May or Freddie Mac Loan. We've been left out.