Home Affordable Refinance Program: Can Obama's Plan Really Help?

May 7th 2016

Borrowers determining whether to opt for the Home Affordable Refinance Program must first determine if they qualify and if the adjusted monthly payment helps their current financial situation. Variables such as debt, financial obligations and home values significantly may impact a borrower's decision.

The Basics

Economic downfalls in the late 2000s led to many homeowners facing foreclosure. Obama's proposed refinancing program appealed to individuals who were facing default and even those who owed more than the value of their homes, especially during a time when home values were decreasing. The program, however, added a bit of complexity for borrowers and lenders because the set of rules stipulated by the government differed from top lenders such as Freddie Mac and Fannie Mae, both government conservatorships.

Eligibility Rules

The Making Home Affordable Refinance Program applies primarily to borrowers with loans guaranteed by Freddie Mac or Fannie Mae. Borrowers must be current on their mortgage without a 30-day late payment within 12 months prior to the application. Borrowers must also own a duplex, triplex, four-unit residential property or detached house they reside in as the owner-occupant. It is also important for borrowers to prove through financial documentation they can afford the new potential mortgage payments established through the program and the lender. Balloon payments or prepayment penalties are not allowed, and the existing loan balance is not reduced when refinancing.

Mortgage Requirements

The new mortgage through the Home Affordable Refinance Program should not exceed 125 percent of the current market value of the property for borrowers who qualify for the program. Borrowers with a second loan are not penalized as the second loan does not count toward the program's 125 percent limit. It is possible to finance closing costs or acquire small amounts of cash when refinancing through the program, but borrowers are not allowed to take out cash to pay other debts, according to Freddie Mac and Fannie Mae guidelines. Interest rates for the refinancing program are determined based on the market rate, and the rates may vary based on the lenders. Additional fees, refinancing costs or points may be applied during the loan process.

Borrowers who are currently required to pay PMI insurance must continue the private mortgage insurance when refinancing through the Home Affordable Refinance Program. Individuals who were not previously required to obtain private mortgage insurance are not required to buy it.

Conclusion

The Obama administration launched the Making Home Affordable Refinance Program in 2009 to help homeowners avoid foreclosure and keep their homes. The objective leading up to the program's launch was to help millions of homeowners modify their loans and lower mortgage payments each month. Individuals interested in the program must meet certain criteria to utilize the program.

Sources

FHA.com "The Obama mortgage" http://www.fha.com/obama_mortgage
MakingHomeAffordable.gov "Home affordable refinance program (HARP)" http://www.makinghomeaffordable.gov/programs/lower-rates/Pages/harp.aspx
Bankrate.com "Do you qualify for refi plan?" http://www.bankrate.com/finance/mortgages/do-you-qualify-for-refi-plan-1.aspx

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