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HARP 2.0 Is Good News to Underwater Buyers in the Derby State

By: Morris Newman | October 19th, 2012

It’s a sign of the times, perhaps, that Kentucky residents may feel relieved to learn that only 8.8% of state residents are underwater on their mortgages. Nationally, the figure is much higher, with 22.5% of Americans, or about 15 million households, owing more on their mortgage than their homes are worth, according to the Louisville Courier-Journal.

Experts have different theories as to why the Kentucky housing market did not get overheated in 2005-2006, as in much of the rest of the nation. While prices fell in Kentucky, they did not fall as calamitously as in California and other volatile markets, which saw prices collapse up to 35% in some places. Perhaps the small-town character of Kentucky shielded the state’s housing market from big-city price inflation.

That said, 8.8% of households being underwater on their mortgages is a serious issue that needs a powerful remedy. The problem is that most conventional lenders will not refinance a mortgage that’s worth more than the current market of the house. Some relief may be available to people with VA and FHA home loans. Those fortunate borrowers can refinance on a “Streamline” basis, despite being underwater. For the rest of Kentuckians, some other way of refinancing is needed.

HARP 2.0 is a home loan that is designed to take some financial pressure off homeowners who are making high monthly payments on a house that has lost value. People in this predicament can feel like they are over paying, which makes underwater households at great risk of losing their homes—or walking away from them. HARP 2.0, which was created by the federal regulator that oversees Fannie Mae and Freddie Mac, is able to refinance a mortgage for more than 100% of the loan amount to the property value, also known as loan to value or LTV. In fact, many homeowners who have refinanced through HARP 2.0 have “re-fied” their mortgages for more than 125% LTV. That’s a hard record to match with any other loan type.
HARP 2.0 is not a remedy for households in financial distress. Beyond the income and credit requirements, homeowners must be current on their mortgages. Also, the mortgage must be owned by either Fannie Mae or Freddie Mac, the federally chartered enterprises that buy the majority of home loans in America. The advantage of HARP 2.0 is that it allows homeowners to re-fi to current low interest rates, currently hovering near historic lows. Underwater or not, now is a good time to refinance.

Not all lenders offer HARP 2.0, so some research may be necessary. In addition, some lenders may tack on some extra fees to HARP 2.0 loans, in addition to the closing costs of “points” that accompany a home purchase. Also, borrowers may find themselves turned down by one lender, only to be accepted by another. The message is to compare the terms of different lenders carefully and to be persistent.

It feels good to refinance, and to know that your mortgage will remain affordable until home values once again increase. Although buyers may feel understandably impatient with the market, the fact is that home values nationally have been on the rise for more than a year. Until the market catches up with our mortgages, HARP 2.0 can take some of the strain out of being underwater.

FreeRateUpdate.com surveys more than two dozen wholesale and direct lenders’ rate sheets to determine the most accurate mortgage rates available to well qualified consumers at about a 1 point origination fee.


Latest HARP Mortgage News April 20th, 2014

  • FHA Home Buying Dollar Goes Far in Kentucky

    By: Morris Newman | October 19th, 2012

    FHA loans can buy a lot of house in Kentucky. Current loan limits published by the government-backed mortgage program demonstrate that an FHA loan can be an affordable way to get into a single family home, a duplex, even a … Continue reading

  • Kentucky Mortgage Rates: Kentucky Mortgage Interest Rates Are Unchanged This Week

    By: Vanessa Rodriguez | February 4th, 2011

    Due to a decrease in home construction throughout the state of Kentucky, prices on mortgage backed securities fell last week. Fortunately, this week, due to positive data on manufacturing throughout the United States and Europe, mortgage interest rates increased on some mortgage types and decreased on others, such as on jumbo mortgages. On the whole, mortgage interest rates in Kentucky have remained steady this week. Continue reading