NEW YORK (MainStreet) -- Of the hangovers from 2008, one of the least discussed is the Great Recession's long-term effect on the housing market. After the bubble burst, thousands of people’s homes went “underwater,” that is to say that the mortgage is worth more than the property itself, and stayed that way. It led to the middle class catastrophe as a nation of homeowners found themselves not only unemployed or under-employed, but also unable to even sell homes they could no longer afford.
Although employment has largely recovered, property values in many areas continue to struggle under the weight of a buyer’s market. Thousands of homeowners still owe more on their property than it’s worth. It’s a financially tough position to be in, locked into a piece of property that’s too expensive to leave, but fortunately there are some government programs to help.
One of the best is set to sunset at the end of next year. HARP, the Home Affordable Refinance Program, was passed in 2009 by the Federal Housing Finance Agency (FHFA) as a way to help homeowners better manage their mortgages. It helps people with negative equity (“underwater”) properties refinance at new, lower rates to which they otherwise wouldn’t have access.
Millions of people have taken advantage of HARP, and according to the website LowerMyBills.com up to 700,000 more could still qualify.
There’s no reason for them not to.
“This is one of those rare programs that actually adds value in the sense that it offers a permanent fix,” said Greg McBride, chief financial analyst with BankRate.com. “It’s not temporary in nature. HAMP [the Home Affordable Modification] was temporary -- it reduced peoples payments for only five years and then the payments started to go back up again. Not with HARP, it’s a permanent solution.”
To qualify, the homeowner must be current on the mortgage, have made no late payments within the last six months and own a home otherwise ineligible for refinancing. The loan must have been issued before May 31, 2009 and not previously refinanced through this program.
The catch with refinancing programs is that their value depends a lot on timeliness.
Homeowners with positive value in their property can wait around, or refinance again down the road if they get a bad rate, but anyone with a property underwater doesn’t have that luxury. If you get the opportunity while rates are low, it can save you hundreds of dollars per month. Wait around and you might miss the boat.
And rates are low now.
“Particularly when it comes to refinancing you really can’t afford to play the guessing game on interest rates,” McBride said. “I often equate the benefit of refinancing to a stack of cash sitting on the table in front of you. You can grab it now and have that cash in hand by refinancing, or you can gamble. You can sit back and hope that cash will grow by interest rates falling, but then you run the risk of them rising.”
“Why play that game?" he adds. "The stakes are big. Your monthly mortgage payment is the biggest component of your household budget. We’re talking about the place you call home, it’s not something to gamble with.”
Fixed interest rates are a function of several variables, but two of the biggest are the long-term prospects of the economy and inflation. With inflation hovering around, and even below, the Fed’s target of 2% and long-term prospects for the economy generally improving, it’s a borrower-friendly environment.
HARP is a free government program that puts money back into a consumer’s pocket. There’s no downside; if you don’t qualify then all that’s lost is a bit of time on the paperwork, and if you do it can cut your monthly mortgage dramatically.
It’s a program on a clock though. With interest rates low and the program set to expire at the end of next year, there’s no good reason to wait around.
More importantly, this is an option for people who right now don’t really have a whole lot on the table.
“What this program is aimed at is people that would otherwise be on the outside looking in," McBride said. "You can think of inside the fence as everybody that has enough equity to refinance vs. those that are on the outside of the fence, whose homes have so little equity that they can’t refinance."
“It can save them hundreds of dollars per month -- and hundreds of dollars per month at a time when pay increases are really hard to come by," he added. "It may be the only raise they get this year.”
Why not see if you qualify?