4 Problems With the Home Affordable Refinance Program (HARP)
Richard Fonfrias, J.D.
Chicago's Financial Rescue & Bankruptcy Lawyer
Fonfrias Law Group, LLC
While the government's Home Affordable Refinance Program (HARP) sounds like a good idea, things aren't as rosy as you might think.
Right now, the problem with HARP is no different from the problems facing all home loan modification programs. Here are the problems:
Problem #1: The guidelines don't fit most people. As a result, HARP and other home loan modification programs aren't helping enough people because most people don't qualify under their guidelines.
Problem #2: The program does not reduce the amount you owe. HARP and other loan modification programs do not reduce your principal balance. And, in truth, HARP makes the principal balance even larger. This may not matter too much now, but when you go to sell your home, you'll discover that you can't because you owe too much on the mortgage.
Problem #3: If you have mortgage insurance now, then you must continue to pay for it on your modified loan. With a loan modification, your payment amount could decline because you now have a lower interest rate. Still, Fannie Mae says that if you did not have mortgage insurance on your previous loan, then you will not have it after your loan modification.
Problem #4: HARP will not permit you to pay off or refinance a fixed-rate second mortgage or home equity loan.
My recommendation? Try to persuade the second mortgage lender to subordinate, meaning that the second mortgage holder would remain in second position after the first mortgage loan was modified. You may find that this does not work because the second lender has no incentive to go along with this deal. After all, why would the second lender okay a transaction that would result in it having less security for its home equity loan?
Alternatively, you could consult with a bankruptcy lawyer to learn how you and your family may benefit from filing Chapter 13 (Reorganization) Bankruptcy. The courts have the legal authority to modify your mortgage loan as part of your restructuring. With guidance from an experienced attorney, you can emerge from bankruptcy with an affordable modified financial plan. The purpose of Chapter 13 bankruptcy is to reorganize your financial affairs so that your creditors get paid, and you get to keep your home and other assets.