In the United States, the government has created methods for citizens to be able to protect home ownership following a crisis in the housing market that crippled real estate values. A Home Affordable Refinance Program (HARP) is one of the results of those efforts. This government program is a non-traditional way for homeowners to refinance a mortgage to include more attractive interest rates or lower monthly payments. There are specific criteria that must be met for homeowners to qualify for a HARP loan.
A HARP loan is reserved for mortgages that are issued or backed by a government-sponsored enterprise (GSE), such as Fannie Mae or Freddie Mac. It is a tool that can be used by select homeowners to hold onto a residence despite unfortunate financial circumstances. The loan might be extended to individuals who hold a mortgage loan that is worth more than the actual price of the house. This unfortunate circumstance might happen when home values are depressed.
One of the purposes of a HARP loan is to curb foreclosures in the housing market. A HARP loan is issued before a homeowner falls dangerously far behind on mortgage payments, at which point the circumstances might be too far gone for any refinancing and foreclosure might be imminent. The government might step in and approve a HARP loan in the event that a homeowner does not qualify for more traditional forms of mortgage refinancing.
The features of a HARP loan could include a fixed interest rate that is below the previous rate assigned to the mortgage as well as fast processing for the refinancing. The nature of a HARP loan is to increase the chances that a homeowner will not be forced into foreclosure, and if the terms of a mortgage cannot be revised to more attractive conditions, this specialty loan becomes irrelevant. Insurance requirements for a HARP loan are less stringent in comparison with traditional loans in which the equity held by the homeowner is similarly low. Also, for a HARP mortgage to be issued, a borrower does not necessarily need to turn to the same lender that issued the original home mortgage.
Any government issued program, including HARP, might have an expiration date. Lawmakers could extend the life of a program such as HARP in the event that an economy or housing market continues to falter. Additionally, the terms of federal loan programs might be modified throughout the life of such an initiative.