Many homeowners who have less equity in their home are confused about their options available improving their loan terms. Should they be asking for a HARP (Home Affordable Refinance Program) refinance or a HAMP (Home Affordable Modification Program) modification? What the homeowner doesn’t know is they better find out before they call their lender. If a homeowner calls about lowering their payments and the customer service representative perceives the request as a modification, they may submit an initial application for a HAMP modification without the homeowner knowing exactly what they’re applying for.
That’s where the problem begins. HARP guidelines state that a homeowner who has applied for a modification CAN NOT refinance using HARP guidelines. Homeowners who qualify for a HARP refinance and do not qualify for a HAMP modification may be destroying their only chance to reduce their payments without knowing it. Once they submit their HAMP modification application, they disqualify themselves for a HARP refinance.
Why does this guideline exist? It’s simple. HARP was designed to help homeowners who are not in hardship refinance to better loan terms where their only hurdle is available equity. These homeowners should have average to excellent credit profiles and would not need the assistance of a special program if their home had not dropped in value. HAMP modifications are designed to assist homeowners who are in hardship in risk of losing their home and do not qualify for a HARP refinance. These homeowners should be in financial hardship and do not qualify for a refinance. When the customer submits an application for a modification, it disqualifies the client for a HARP refinance because the lender now perceives the customer as someone who must be under some form of hardship, which would make a refinance a high risk. This stays on record and will continue will prevent the homeowner from refinancing through any HARP lender. OUCH!
I have a client who has been shopping multiple lenders for a HARP refinance for months. His income and credit are very good. One of the first people he contacted was his current lender. After moving from one representative to another, he eventually talked to a loan officer about a HARP refinance, but not before a previous representative submitted an application for a modification. Unbeknownst of this unique HARP guideline, the homeowner assumed they would qualify for HARP without any issues.
He eventually chose the terms I offered and we ran his loan through underwriting. We then get a code indicating the homeowner had applied for a modification. The homeowner can only apply for a modification through his current lender, so there is only one way this could happen.
How many homeowners are calling their lenders to get their payment reduced and are disqualifying themselves because the lender doesn’t know what the homeowner is applying for? One easy solution is to apply for a HARP loan with a lender other than your current lender. HARP allows other HARP lenders to refinance a homeowners loan but a modification must be applied for through the existing lender.
Don’t let this be you. Both programs are designed to help homeowners lower their payments who plan on staying in the home. Apply for a HARP refinance first. If you’re turned down, then you can proceed with a HAMP modification. It’s your only of applying for both programs without shooting yourself in the foot.
I spoke with a reader who had the exact OPPOSITE thing happen to them.
The HARP loans sometimes do not require a debt-to-income calculation. Some people who are eligible for HAMP (modification) or HAFA (special short sale program) are restricted from refinancing their loan on HARP first.
My reader did a HARP loan which lowered her payment, but not enough to get her mortgage affordable. She took it anyways thinking it was her only option. Unfortunately, she is now ineligible for a HAMP modification or a HAFA short sale.
HAMP modifications and HAFA short sales are for homeowners who are in hardship. If you are in hardship and the HARP refinance isn’t lowering your payment enough to save your home, you should inquire about a HAMP modification and HAFA short sale before you choose which path to take.
Learn more about how to qualify for a HARP refinance here.
The deadline for HARP loans has been extended until June 30th, 2012 (1-year).
HARP has been extended again through the end of 2013.