What is the HARP 3 Refinance?

By Stevie Duffin Updated on 7/21/2017

HARP 3.0 has garnered much attention and could achieve the level of success that many anticipated before the lukewarm reception of the original HARP. Only months after the launch of HARP 2.0, a plan to implement another revision of HARP has been introduced, aptly titled HARP 3.0 and referred to as #myrefi by the White House which was initially conceived at the president’s State of the Union address in January 2012.

What is HARP 3.0?

HARP 3.0 seeks to further reduce restrictions on eligibility and once more widen the reach of the program by removing the requirement that homeowners’ mortgages be backed by one of the government-sponsored enterprises, Fannie Mae or Freddie Mac.

In the current economic situation, this may seem to address a small minority of homeowners, because Fannie, Freddie, and the FHA control 90% of new mortgages. However, during the last decade, non-GSE lending made up a significantly larger portion of mortgages, with then-cheaper alternatives to GSE mortgages comprising 27.5% of new mortgages in 2005. Thus, HARP 3.0 seeks to extend its coverage to these homeowners, and many believe that this new incarnation will be a step closer to the president’s goal of providing “every responsible homeowner” with the means to refinance and to take advantage of the current low mortgage rates.

In addition to removing the GSE requirement, HARP 3.0 will also attempt to correct some significant issues regarding the liability involved in bank participation with HARP and HARP 2.0. After the onset of the original HARP, in cooperating with HARP 3.0, banks assume the risk of eventually having to pay the cost of the loan, should Freddie or Fannie determine an error in the lending process. 

As a result, many banks refused to take part in the program due to the high legal risk involved. 

Numerous other banks have also resorted to producing their unique version of the HARP 2 guidelines imposing greater restrictions to prevent taking significant losses. These “investor overlays,” while acting as a safeguard for banks, have undercut the revisions that attempted to improve HARP and ultimately generated the necessity for a third draft.

While the fine details of HARP 3.0 remain tentative and undefined, optimism and hopeful speculation prevail. Someday in the not too distant future, many homeowners may find themselves in a much better financial standing upon the induction of this update.

The History behind Harp 3.0

In the aftermath of the turbulent events surrounding the housing market in the last decade, countless homeowners have sought to refinance their homes to recover some of the losses caused by the housing bubble collapse. Many turned to government programs for assistance, hoping to find some solace in the 2009 launch of HARP, the Home Affordable Refinance Program. 

This ambitious program initially sought to reach millions of homeowners who had grown desperate to salvage their mortgage situation. 

However, initial estimates proved unreliable against HARP’s strict limitations on eligibility, which permitted only the loans owned or guaranteed by Freddie Mac or Fannie Mae before May 2009 and require that loan-to-value rations be higher than 80%. 

Coupled with the reluctance of many banks to participate, HARP came up short of its projection of 7 million, serving only 900,000 people. Though an admirable effort and a step in the right direction, HARP failed to provide the relief that it promised.

Several years after the start of HARP, HARP 2.0 took effect in 2012 and modified the original requirements, as a less-restrictive version of the program that has proved much more efficient than its prior version. 

Unlike its predecessor, HARP 2.0 removed all loan-to-value prerequisites and thus included a much larger group of people in its eligibility. 

Consequently, HARP 2.0 currently affects 20% of all refinances. However, several problems remained that hinder many homeowners from qualifying, permitting only acquired GSE loans to qualify.