Deconstructing HAMP and HARP
Homeowners, by in large, haven’t taken the full advantage of the super-low mortgage rates to refinance their homes, for reasons ranging from dinged credit, to more stringent lending standards.
A couple of responses to this dilemma are worth a re-look: The Home Affordable Refinance Program (HARP) and the Home Affordable Modification Program (HAMP). They both were established in 2009, and since they’re set to expire in 2012, it’s a good time for some remedial reading about HARP and HAMP.
HARP is a lifeline for qualifying borrowers who are current on their payments, and whose mortgages are owned or guaranteed by Fannie Mae or Freddie Mac and can refinance even if they have insufficient equity to qualify for a traditional refinance.
Participation in HARP, as of the end of 2011 has been, to use Fed Chairman Ben Bernanke’s word, “modest.” Only about 925,000 mortgages have been refinanced through HARP.
To qualify, just two things need apply. You had to have gotten your mortgage before May 31, 2009, (so that includes a big number of borrowers who got an ARM before the decline of the subprime market), and you to have been current over the preceding year.
Like HARP, the Home Affordable Modification Program (HAMP) was also designed to help homeowners stay in their
homes, but instead of refinancing, they could avoid the pain of foreclosure by modifying an existing mortgage. Banks will either extend the term, reduce the interest rate, or reduce the principal.
About 880,000 HAMP modifications have been made so far, and benefits for the average HAMP participant is substantial. For example, the median monthly payment after a permanent HAMP modification is about $831, compared with about $1,423 before the modification.