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Should You Be Taking Advantage of HARP?

Toward the beginning of February, I began the process of refinancing my home with the help of Home Affordable Refinance Program (HARP). This is a government program that recently expanded its eligibility requirements [3]. However, many people aren’t aware of the fact that they might qualify for this program, which is fairly helpful — if you can get through some of the nightmarish paperwork.

Another reason that others might be reluctant to take advantage of HARP is that they don’t realize that this is a legitimate program. It sounds suspicious at first, and some of the less than truthful advertising surrounding HARP has also turned off some homeowners. But, if you still have a mortgage rate above 5%, HARP, if you qualify, can be a really good thing.

Why aren’t More People Taking Advantage of HARP?

One of the great things about HARP is that it’s aimed at those who have been responsible with their finances, but who, usually due to a drop in the market, are underwater and can’t refinance to take advantage of the current low rates.

Jack M. Guttentag, Professor of Finance Emeritus at the Wharton School of the University of Pennsylvania and the man behind The Mortgage Professor [4] web site, summarizes who is eligible for HARP: “Their mortgages were acquired by Fannie Mae or Freddie Mac prior to June 1, 2009. They are current on their mortgage, have had not more than one late payment in the past 12 months, and zero late payments in the last six months.”

If you bought your home with a FHA loan, there is a good chance that you qualify. So, if there are people who qualify, why are there so few HARP refinances recently?

Guttentag points out that some of it has to do with awareness. “There are always people who…are not aware that the program exists, or that they qualify for it,” he says.

Another concern is that not all lenders are on board with the process. “Sometimes lenders get in the way,” Guttentag tells me via email, “imposing more restrictive rules than Fannie or Freddie.”

But one of the biggest issues is that many consumers don’t realize that HARP is a real program. I began my efforts to refinance under HARP after getting a referral from one of those free credit score sites (I think it was Credit Sesame [5], but it might have been Quizzle or Credit Karma). I knew about HARP, and that I qualified, but my local bankers weren’t interested in refinancing me, so I gave it up until the magic of lead generation helped out.

I’m in the minority, however. “There are many who have fallen prey to sharpsters,” Guttentag says. “There are those who are so frightened by misleading stories…that they are immobilized.”

And it does seem too good to be true. You can get a relatively low-cost refinance (mine is costing $1,740, which will be paid back in about six months since I will be saving $320 a month), without an appraisal, and with streamlined processing. I’ve had a bit more trouble with the process since I am self-employed, and it always seems that more documentation is needed. But for many homeowners with more traditional jobs and good habits, HARP — if eligibility requirements are met — can be a great way to refinance.

You can get more information from the government’s page on HARP [6]. I’ll be back with an in-depth look at my refinance when it closes.

(Photo: nikcname [7])