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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: May 14, 2012

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The Home Affordable Refinance Program (HARP) 2.0 is a rewrite of a previously failed program that was designed to help underwater homeowners refinance their mortgage loans. Despite the success of its predecessor, HARP 2.0 appears to be pulling its own weight and providing the nation’s homeowners with a decent service.

The original HARP was designed with a contingency that eligible homeowners must have a loan-to-value (LTV) ratio of less than 125 percent. In other words, the value of an applicant’s mortgage loan could not be more than 125 percent of the securing property’s appraised value.

For example, imagine John Doe, who purchased a home during the housing boom for $150,000. Over the next few years he paid down his mortgage loan to $130,000, but then saw his house decline in value to $100,000 when the market collapsed. He would not qualify for a HARP refinance because his mortgage loan has a 130 percent LTV.

If his mortgage loan was worth $125,000, then he would meet that LTV threshold, and he could qualify.

HARP, however, failed to realize that most homeowners who were hit by the market collapse had LTV’s far and above that 125 percent ceiling. As a result, those who needed HARP didn’t qualify, while those who didn’t need HARP could qualify. The program was an utter failure and a complete embarrassment to the lawmakers who created it.

But then HARP 2.0 was devised and released, coming to fruition in March, 2012.

HARP 2.0’s biggest attraction was the abolishment of the LTV ceiling. With HARP 2.0, mortgage loan borrowers wielding any LTV greater than 85 percent can qualify for a refinance under the program. It doesn’t matter if their LTVs are 125 percent or 1025 percent; HARP 2.0 no longer discriminates against the severely underwater.

While critics and cynics were skeptical of HARP 2.0’s potential and real-life value, recent reports reveal that the program is seemingly doing really well.

According to a press release, Bank of the West has seen a sharp rise in mortgage loan applications since April due to the promises HARP 2.0 brings. Since many of those applications were for refinances, it’s safe to say that something has corralled homeowners to the banks.

Karen Mayfield, Bank of the West’s National Sales Manager for the Mortgage Banking Division, said, “We are anticipating that one out of every five new borrowers will be seeking a HARP 2.0 refinance loan this year. This program is providing a real relief for homeowners who are current on their mortgage but have been unable to refinance due to a decline in the value of their home.”

Traditional means of refinancing mortgage loans have also proven to fail those who own underwater properties since banks discriminate against those with high LTV’s, much like the original HARP did.

Mayfield also conceded to the fact that historic low home interest rates may also have played a part in this uptick of applications.

In order for homeowners to qualify for a HARP 2.0 refinance, they must meet the following criteria:

  • Their mortgage loans must be owned or guaranteed by Fannie Mae or Freddie Mac
  • Their mortgages must have been sold to Fannie or Freddie on or before May 31, 20009
  • Their mortgages must have an LTV greater than 80 percent
  • All payments must be current, and applicants must have no 60-day late payments in the past 12 months.

For more information about the HARP 2.0 program, visit the official HARP Phase II Q&A page.