HARP vs. Fannie Mae or Freddie Mac Loan Modification

Cogburn Law
Madeleine Jones
April 22, 2013


HARP 2.0

HARP is the government sponsored Home Affordable Refinance Program.  It is currently available to homeowner’s whose loans are owned by Fannie Mae or Freddie Mac.  Under this program a homeowner that is presently underwater on their mortgage will be able to refinance their home, generally over a new 30 year term, to current market interest rates.  In order to qualify you must not have previously refinanced under HARP, the loan must have been taken out prior to January 1, 2009 and you can have no 30 day missed mortgage payments in the last 12 months.  This program is a true refinance in that the lender will review your income and make sure you can afford them home.  If you qualify, you will have a new loan at a fixed rate.  It is that simple and can frequently be completed in 30 days or less depending on your lender.

An important thing to note with HARP is that you are not required to keep the same lender that you currently have.  Some lenders will claim you don’t qualify because your home is “too upside down”.  The reality is that the HARP program itself does not have any limitations to how underwater you are but some lenders may.  If you run into that problem, shop around to different lenders.  We work with lenders that participate in HARP and have no limitation on how underwater you are and would be happy to assist if you have any questions.

Fannie/Freddie Loan Modification

Unlike HARP where you are getting an entirely new loan, a loan modification through Fannie Mae and Freddie Mac merely changes the terms of your existing loan.  If you are delinquent on your mortgage, a Fannie/Freddie loan modification may be your best option.  I’ve previously discussed loan modifications in depth but will give a brief summary again.  There are essentially 2 modifications that Fannie Mae and Freddie Mac will do.  The first is a HAMP modification. Under HAMP (Home Affordable Modification Program) your new mortgage payment will be at or very close to 31% of you gross (before taxes) monthly income.  The 31% will include your taxes, insurance and any HOA fees.  The other modification is an internal modification which takes the loan out to 40 years at current market rate.  The loan will likely defer a portion of your balance so you only end up paying interest on an amount that is close to market value. Unfortunately, Fannie Mae and Freddie Mac currently do not offer principal reductions.  That means no matter which program you end up in, you will still owe the full amount of your mortgage.

Both programs have benefits you will have to weigh your options as to which program is best for you.  HARP is best for those that are credit conscious and wish to keep their credit in excellent condition.  The modification may be a better tool for someone that is already delinquent or for someone who is looking to get a larger savings through a modification.  If none of these programs sound beneficial to you, a short sale may be the next best option. 

Contact our offices with further questions. We can help.