With U.S. home values rising, the cash-out refinance has returned, marking the start of the end of the "underwater refinance" era.
An underwater refinance is a refinance for a homeowner whose loan size is bigger than what their home is worth.
Underwater refinances are only possible because of forgiving mortgage guidelines such as those for the VA Streamline Refinance and the FHA Streamline Refinance -- both of which waive home valuation as part of the approval process.
However, another forgiving set of guidelines -- those belonging to the Home Affordable Refinance Program (HARP) -- have been of help to underwater homeowners, too.
HARP has been used for more than 3.3 million refinances since its 2009 inception, with homeowners saving more than $3,000 per year per refinance.
If your mortgage is currently underwater, consider making a HARP loan application. Approval standards are loosening and the program expires December 2016.Click to see today's rates (Jul 24th, 2016)
Since 2009, millions of U.S. households have refinanced despite having little or no home equity.
Some have refinanced via the VA Streamline Refinance and others via the FHA Streamline Refinance. More than 3 million homeowners, though, have used the government's Home Affordable Refinance Program.
Sometimes called the Obama Refi, the HARP loan is a refinance for homes with "lost home equity". Via HARP, lenders are instructed to make only a few verifications beyond proof of a year's worth of mortgage payment.
HARP got its start in 2009.
At the time, the U.S. economy was sinking and mortgage rates had fallen to an all-time low. Unfortunately, however, home values were dropping, too, so there weren't a lot of homeowners eligible to refinance without having to take on private mortgage insurance (PMI).
For most homeowners, the additional costs of PMI -- which could total $2,500 per year or more -- wiped out the benefits of the refinance.
The government recognized this problem and knew that getting homeowners to refinance to lower payments could do three things:
So, to help make refinancing possible, the government created the Home Affordable Refinance Program (HARP).
The main draw of HARP was that the program allowed homeowners whose loan-to-value exceeded 80% to refinance without an increase in their current private mortgage insurance coverage.
This meant that homeowners who had originally made a 20% downpayment -- but now had little or no home equity at all -- could refinance without needing to add a PMI policy to their payment.
Before HARP, this was impossible. With HARP, a niche was filled.
Today, though, with home values rising, fewer U.S. homeowners are underwater any more. HARP's niche is less important.
Between July and September 2015, Freddie Mac data shows the median appreciation of a refinanced home was 6%. This is up from negative sixteen percent just four years ago
That said, HARP remains an integral part of the U.S. refinance market.
Nearly one-half million homeowners remain HARP-eligible and each stands to save thousands of dollars annually via the program.
It's unclear why these homeowners have chose to skip their refinancing. Some experts think homeowners are "tired of refinancing", and don't want to gather their paperwork. Others believe that homeowners are unaware that they're eligible.
Either way, with mortgage rates low, it's a good time to look at HARP mortgage rates -- the program expires at the end of next year.Click to see today's rates (Jul 24th, 2016)
If you were once denied for the HARP loan program, it's time to apply again. HARP mortgage guidelines are looser than ever in an attempt to help more homeowners. And, there's a back story on this.
When HARP was first launched in 2009, it was successful, but the program wasn't reaching nearly the number of households as planned. The government had aimed to help 7 million households. After two years, though, HARP hadn't reached even one million homes.
So, to boost HARP refinances, in late-2011, the government loosened the programs requirements and relaunched the Obama Refi as HARP 2.0.
"The President waives refi requirements", said headlines.
The biggest difference between the first version of HARP and HARP 2 was that HARP 2 allowed for unlimited loan-to-value on a refinanced home. No matter how far underwater you were with your home and your loan, with HARP 2.0, refinancing was possible
Unlimited LTV was a boon to HARP refinancing in places such as Phoenix, Arizona; Orange County, California; and Las Vegas, Nevada -- three areas in which homes values had plunged between 2007-2009.
Homeowners in these areas were typically severely underwater and, until HARP 2, they had been precluded from using the program.
It's no wonder that the average appreciated of a refinance home changed in 2011 -- HARP 2 changed how refinancing was done.
Today, though, five years later, home values are recovered. Fewer U.S. homeowners are underwater. The HARP program still exists and will last until the end of 2016 but, each month, a shrinking number of U.S. households find themselves eligible.
If you can use HARP to refinance your loan today, get started with an application now.Click to see today's rates (Jul 24th, 2016)
Mortgage rates are defying Wall Street predictions for 2016, and that includes rates assigned to HARP refinance loans.
With rates down, there are more than one-half million mortgages "in the money" for a refinance.
The government defines loans which are "in the money" as those with loan balances of at least $50,000; with remaining loan terms of at least 10 years; and, with current mortgage rates which are at least 150 basis points (1.5%) above today's market rate.
Today's market rate is near 3.75 percent.
Homeowners who are in the money will save 30% or more on their mortgage which, for some households -- totals $8,000 or more per year.
If your current loan is HARP-eligible, compare your current mortgage rate against today's HARP pricing.
Hundreds of thousands of U.S. homeowners are immediately HARP-eligible. Maybe you are one of them. With mortgage rates low, it's time to explore what kind of money you can save.
Get today's live mortgage rates now. Your social security number is not required to get started, and all quotes come with access to your live mortgage credit scores.Click to see today's rates (Jul 24th, 2016)
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
Sarah M. Office Manager
The Mortgage Reports has been an invaluable resource to me -- it helped me to pick the sweet spot to refinance. Thanks!
Dick B. Director of Special Lending
I read The Mortgage Reports because it delivers timely, up-to-the-minute mortgage news. Keep up the good work.
Theresa D. President, Title Services
The Mortgage Reports gives me an overview of what's happening with mortgages both locally and nationally. I really enjoy it.
2016 Conforming, FHA, & VA Loan Limits
Mortgage loan limits for every U.S. county, as published by Fannie Mae & Freddie Mac, the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA)