It’s no secret that the recession has left many homeowners with a mortgage balance that is higher than their home is worth. According to U.S. News and World Report, nearly 11 million homeowners are currently underwater.

The foreclosure crisis resulting from the precipitous drop in home values has been well publicized. But the inability to qualify for a mortgage refinance is a less-documented, but equally troubling problem affecting many Americans with good credit who make their monthly mortgage payments on time.

While interest rates are at all-time lows, these individuals are unable to take advantage of much-needed savings simply because they are underwater. In fact, if the balance of your mortgage is greater than 80% of your home’s present value, you will likely have difficulty securing a refinance..

Of course, this doesn’t make much sense if the homeowner is attempting to refinance the existing mortgage balance with their current lender. The risk to the lender would not change and, in fact, one could argue that risk would be lower because the mortgage payments would be reduced. Nevertheless, the problem persists either because banks haven’t adjusted their lending requirements to accommodate this situation or the mortgage has been sold to another party.


The U.S. Departments of the Treasury and Housing and Urban Development (HUD) have introduced a program to help alleviate this problem. The program is called the Home Affordable Refinance Program (HARP). The goal of the program is to allow homeowners who have low equity or who are underwater to refinance at today’s low rates. You can also refinance to a shorter term.


The mortgage servicer is the company to whom you pay your mortgage. This program is voluntary and not all mortgage servicers participate. Below are some basic guidelines for eligibility. Some mortgage servicers may have additional requirements for participation.

  • The mortgage must be owned or guaranteed by Freddie Mac or Fannie Mae.
  • The mortgage must have been sold to Fannie Mae or Freddie Mac on or before May 31, 2009.
  • The mortgage cannot have been refinanced under HARP previously unless it is a Fannie Mae loan that was refinanced under HARP from March-May 2009.
  • The current loan-to-value (LTV) ratio must be greater than 80%.
  • The borrower must be current on the mortgage at the time of the refinance with a good payment history in the past 12 months.
  • The program ends on December 13, 2013.

How to Apply

The first step is to find out whether your loan is owned or guaranteed by Fannie Mae or Freddie Mac.

  • If you find that your loan qualifies, contact your mortgage servicer and ask about HARP to get the ball rolling. If you would like free assistance before making the call, you can contact a housing counselor at the Department of Housing and Urban Development. Their phone number is 888-995-4673. You can also visit their website at the following link: (note that the site references foreclosure avoidance, but the counselors can help you with this program regardless of whether foreclosure is an issue for you).
  • If your current mortgage servicer doesn’t participate, contact another one that does. As with any mortgage refinancing, be sure to compare rates and fees.

What if I Don’t Currently Qualify for HARP?

  • The current version of the HARP program is referred to as HARP 2.0. It included changes to increase participation over the original HARP 1.0 program. Even if you don’t qualify for the HARP 2.0, HARP 3.0 may be on the way. There is proposed legislation in Congress to increase participation. The biggest change in the proposed program is to eliminate the requirement that the loan be owned or guaranteed by Fannie Mae or Freddie Mac. This could open up eligibility to as many as 13 million homeowners.
  • The U.S. government recently settled with five large banks accused of mortgage abuses. Part of this $26 billion settlement stipulated that $3.5 billion be dedicated to support refinancing underwater mortgages that are not owned or guaranteed by Fannie Mae or Freddie Mac. If you don’t meet HARP requirements, but your mortgage is serviced by Wells Fargo, Bank of America, JP Morgan Chase, Citibank or Ally/GMAC, you may qualify for refinancing under this settlement.
  • Lastly, you may be able to obtain a loan modification from your lender. While this is not technically a refinance, it may still lower your mortgage rates and payments.

Note: Ms. Fabbri and NetCredit do not provide financial advice. Please consult with a qualified financial advisor regarding your individual circumstances.