At the peak of the American housing crisis (2007 – 2009), more than 16 million homeowners owed more on their mortgages than the houses were worth. Despite recovery in the economy, some 7.9 million so-called "underwater mortgages" are still causing Americans severe economic duress and for some, foreclosures. Over half of owners with underwater homes still owe more than 20 percent on their loans, according to Zillow's 2015 Q1 Negative Equity Report. It's going to take a lot of digging for many to climb out of the mess. But help is available.
Underwater Mortgage Refinance: HARP & HAMP
Two federal programs – HARP and HAMP – were set up in 2009 during the subprime mortgage crisis to provide refinancing relief for troubled homeowners, providing mortgages at affordable rates. HARP loans are not available to homeowners in default; HAMP modifications are.
Here some key details of each plan:
The HARP Program
Under provisions of the Home Affordable Refinance Program (HARP), the home value doesn't matter of refinancing to a fixed-rate loan. Fannie May reports that the average HARP refinanced mortgage saves homeowners $250 a month on house payments, on average. According to the Federal Housing Finance Agency, there are 578,000 HARP-eligible loans in the United States that would qualify for refinance incentives. To apply, owners must:
- Have no delinquencies on their current loan for 30 or more days during the previous year.
- Have a mortgage guaranteed by Fannie Mae or Freddie Mac no later than May 31, 2009.
- Have a current loan-to-value ratio (LTV) of at least 80 percent.
- Owe less than 125 percent of the current market value of the home.
The federal government has extended the HARP program through December 2016. HARP lenders set their own rates, which is why consumers should compare offers when looking for an underwater mortgage lifeline.
The HAMP Program
Underwater homeowners who originally purchased their property using a VA, FHA, USDA, or a jumbo loan are ineligible for HARP loans. For them, the federal government created the Home Affordable Modification Program (HAMP). HAMP is also offered to qualifying homeowners through December 2016. According to Department of Housing and Urban Development (HUD), HAMP lowers the interest rate on the original mortgage, extends the term, and can reduce the principal. HUD reports an average reduction of monthly house payments by $500. To qualify for HAMP, homeowners should:
- Owe up to up to $729,750 on their primary residence.
- Have an initial loan originated on or before January 1, 2009.
- Have already been delinquent in payments or cannot afford the payments.
- Be underwater with a home that has a qualifying Loan-To-Value ratio (to receive a reduction on principal).
HARP and HAMP programs are created to help homeowners stave off potential foreclosures and certainly look less harmful on a credit score than having your home seized. This could be the right time for homeowners with underwater properties to consider a HARP or HAMP life preserver. There are no indications that these programs will be extended beyond the end of 2016, and with a national election on the way and a potential change in policy, financial assistance for homeowners who are underwater might also come to an end.