Owning a home is a trademark of success in American culture. Truly, when you sign those papers, your heart swells with pride.
When the bottom fell out of the housing market in 2006, millions of people were left in crisis. Over 2 million people suffered from foreclosure in the United States the following year.
As a response to the housing crisis, the federal government created the home affordable refinance program, HARP for short. The program ran until December 31, 2018, and helped more than 3.4 million people score a lower rate on refinanced mortgages, essentially keeping them in their homes and keeping the American dream alive.
What are families supposed to do now that the HARP mortgage refinance program has expired? Keep reading to learn about the HARP program and the home-refinance program options that are now available.
What Was the Home Affordable Refinance Program?
In 2006, the U.S. housing bubble burst. Prior to 2006, people were enjoying low-interest rates and the advantage of flexible mortgages. Some individuals were betting on things, like balloon payments or adjustable-rate loans. Both of these types of mortgages came with significant advantages and significant risks.
With balloon payments, a person would purchase a house with the agreement to have low-interest payments for a period of time. At the end of that time, the loan resets into anew or continuing mortgage at whatever the market rate is for the time. If you did not make payments on time, then the lender can make the remainder of the mortgage due at the end of that time period.
Adjustable-rate mortgages were similar in that the lender and lendee agreed on a low-interest rate initially. The lender had the freedom to adjust the interest rate as the market fluctuated, so it could go down or it could go drastically up.
In 2006, housing values plummeted. As a result, many people were left with a mortgage higher than the value of their homes. They were upside down financially.
Enter the idea of mortgage refinance. This idea existed before 2006, but it often looked like those risky scenarios like balloon payments or adjustable-rate mortgages.
The federal government stepped in for an assist in 2009 with a HARP home refinance plan.
Who Qualified For a HARP Refinance?
Not everyone qualified for a HARP refinance. The federal government had restrictions.
For one, the loan needed to be owned or guaranteed by either Fannie Mae or Freddie Mac. Fannie and Freddie did not have to originate the loans, but they did need to guarantee the loans.
Secondly, the mortgages had to be timed right. Only mortgages advanced on or before May 31, 2009, qualified.
Also, initially, the loan-to-value ratio needed to be above 125 percent. This ratio means you needed to owe 25 percent more than what your home was worth. So, if your home was worth $100,000, you needed to $125,000 on it.
Later in 2009, the program expanded so anyone with a loan-to-value ratio of 80 percent or higher qualified.
Finally, no delinquents could apply. You had to be current on your payments. If you were behind by 30 days or more, you did not qualify.
You also could not have had more than one late payment in the last 12 months.
Ultimately, the HARP refinance rates helped millions of homeowners lower their payments enough so they could stay in their homes. They still owed the same amount of money, but they paid less each month so they could afford to live in their homes still.
What Is HIRO?
HARP was initially set to expire in 2016 but the federal government extended the expiration date to December 31, 2018. This does not mean homeowners have no other options today, though.
Definition of HIRO
The HIRO program is a program similar to HARP in that it offers homeowners the opportunity to refinance their homes for a lower interest rate. Fannie Mae administers the HIRO program.
HIRO stands for the High LTV Refinance Option program, meaning a high loan-to-value refinance option. So, the higher your loan-to-value on your home, the better chance you have at refinancing with HIRO.
Loan to value refers to the amount of money you owe on your home compared to what the home is worth. So, if you owe more money than what your home is worth, you have a high LTV. This problem occurs when your home value drops after you have purchased it.
Qualifications for HIRO
Like HARP, not just anyone qualifies for HIRO.
Fannie Mae administers HIRO, so your mortgage must be held by Fannie Mae to qualify.
Similar to HARP, time matters with HIRO as well. Your mortgage must have originated on or after October 1, 2017. Also, you need to have at least 15 months between when you took out your mortgage and when you apply for HIRO. So, if you scored your mortgage last year, you need to wait a little while yet.
You need to be in good stead with your lender to qualify for HIRO. You cannot have any 30-day late payments within the last six months. You can have no more than one 30-day late payment within the last year, and you must have no late payments within the last 30 days.
You also need adequate documentation that you can pay your mortgage. This requirement means you will need verification from an employer or from self-employment. You can also use documentation of non-employment income, such as Social Security or a pension.
LTV Ratio Requirements
Your loan-to-value requirements are different for HIRO than HARP. HIRO has no maximum loan-to-value ratio. So, you can truly be underwater by quite a bit and still qualify for HIRO.
HIRO does have a minimum LTV ratio. Your qualifications depend on the type of home you have and the number of family units in the home:
- Principal residence with 1 until have a minimum of 97.01%.
- Principal residence with 2 units has a minimum of 85.01%.
- The principal residence of 3 to 4 units has a minimum of 75.01%.
- Second homes with 1 unit have a minimum of 90.01%.
- Investment properties with 1 to 4 units have a minimum of 75.01%.
Does HIRO Expire?
Currently, Fannie Mae has not set an expiration date for HIRO to expire.
Live the Dream
Homeownership is as American as apple pie. It is what we dream of with a white picket fence, two kids, and a dog. Programs, such as the home affordable refinance program, helped keep the dream alive.
Programs, like HIRO, keep it alive.
If you are looking to refinance your home, get a quote with us. We would love to help keep your dream alive.
For all of your mortgage needs, contact us.
We at 7th Level Mortgage are an experienced team of mortgage professionals based out of New Jersey and serving the east coast from Pennsylvania to Florida including Delaware and Maryland. We have won numerous awards for our excellent professional work and reputation with clients for being extremely diligent, accessible and hands-on throughout the entire mortgage process.