Started during President Obama’s tenure in the White House, the Making Home Affordable Program (MHA) continues to be a key part of the federal government’s drive to help homeowners stay out of foreclosure, heal the housing market, and strengthen the nation's economy.
How MHA is Making Homes Affordable
MHA brings homes within reach of Americans by providing a variety of programs designed to help with the most common scenarios that U.S. homeowners are facing. The Home Affordable Refinance Program (HARP) is designed to bring mortgage rates and monthly payments down for homeowners in homes that are valued far below the amounts owed on their loans. The Home Affordable Modification Program (HAMP) helps homeowners modify loans and avoid foreclosure.
Loan Modification vs. HARP
In March 2009, the federal government launched to help embattled homeowners in the midst of the housing crisis. Two programs, HARP Mortgage and HAMP, were part of this initial launch. Unfortunately, the guidelines on this original version of HARP included loan-to-value (LTV) limits that were far too low to serve a large segment of U.S. homeowners, those who had suffered a huge drop in the market value of their homes while their loan amounts stayed high. Sadly, these homeowners remained locked out of any conventional home loan or refinance programs, including HARP.
In March 2012, HARP removed the LTV maximum limit altogether and made other significant changes to expand the program to millions more Americans, make it faster to get through the refinance process and extend the program for a few more years. It was built to help homeowners who had been able to stay current on their payments but were in need of relief. This also made it possible to decrease the terms on their loans and refinance from a volatile balloon and interest-only, or adjustable rate mortgage loans into stable fixed-rate loans.
The loan modification program, on the other hand, was made to help those who were having a hard time making their monthly mortgage payments. To be eligible for this program, borrowers would have to miss their monthly payments, prove their ability to make their new loan payment, and their new monthly payments would be kept at or below 31% of their before-tax income.
Defining Financial Hardship
When loan modification was introduced to the American public, it promised to help those who could demonstrate financial hardship and meet the program’s requirements. At the same time, however, as what commonly happens with most forms of government assistance, there were fears that some individuals—and even lenders—would fake their hardship to be eligible to receive program benefits.
For instance, homeowners would hold off on their monthly payments on purpose, just to qualify for loan modification. Those organizations assisting individuals on loan modifications, because they stood to profit from the loan modification program, would advise their clients to do this very thing. This, in turn, ruined the credit histories of thousands of homeowners, making a bad situation worse. It ended up hurting homeowners with solid payment histories while offering no relief from their underwater loans. In short, loan modifications helped those who genuinely could not make their monthly payments, but it wasn’t a healthy choice for those who were still able to make their payments. In fact, they were proving to do more harm than good.
At the same time, HARP emerged as a strong alternative to loan modification, but the existing version would have to be revamped. If the program was going to help more Americans get out of underwater loans and into more manageable ones, some adjustments would have to be made.
For example, the 125% limit of a borrower’s Loan-To-Value ratio (LTV) in the existing HARP had left hundreds of thousands of borrowers out of the program. But by removing that maximum limit, HARP could suddenly help many more Americans and positively impact the country’s economic recovery.
HARP Refinance Changing Lives
Sure enough, HARP 2.0 was released a short time later, and it eliminated the 125% LTV limit, loosened other requirements, and added new provisions to shorten application times. Where loan modification had failed, HARP 2.0 succeeded in getting hundreds of thousands of additional borrowers into refinanced loans with lower rates and fees and smaller monthly payments.
Aside from the immediate benefits of lower rates and payments, HARP 2.0 also made it possible for qualifying homeowners to avoid foreclosures that would have been costly to them, to banks and lenders, and to an already-fragile economy.
Having said that, loan modifications were beneficial to other groups of homeowners affected by the housing crisis—namely those who were genuinely unable to make their monthly payments and would be unable to get caught up. Together, these two options helped two different groups of homeowners get to a point where they could keep their homes and recover financially.
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