The Home Affordable Refinance Program (HARP) is a U.S. government program that helps homeowners refinance, even if they are underwater. The first version of HARP had problems, and relatively few homeowners were helped.

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The latest version of HARP, which debuted at the end of 2011, should remove many of the obstacles to refinancing, even for people with bad credit. Mortgage lenders began accepting applications for this program on December 1, 2011.

If you tried to refinance under the old HARP, you were probably disappointed. There were multiple reasons that HARP failed to provide widespread help to homeowners. Many homeowners owed more than the maximum allowable 125 percent of their home's value, or had seen drops in income or credit scores that made them ineligible for refinancing. In addition, refinance fees were too high for many to consider one.

Mortgage lenders' and insurers' interests were also stacked against HARP 1.0. Borrowers needing mortgage insurance had to refinance with their current lenders, and mortgage insurers wouldn't transfer policies. Some lenders were unwilling to voluntarily refinance their existing customers to lower rates, and lenders with second mortgages refused to subordinate their liens to the refinanced loans.

Considering how much disappointment has been caused by the unfulfilled promises of previous mortgage relief plans, you may not believe that the new version of HARP is any better. However, it's worth checking out the new HARP guidelines. You may be pleasantly surprised to find that you qualify to refinance -- even with bad credit.

Why HARP 2.0 makes it easier to refinance

Changes to the HARP plan have eliminated many of the obstacles to refinancing for underwater homeowners. Here are the critical changes that should make it easier for homeowners to refinance:

  • New HARP imposes no maximum loan-to-value. You can refinance no matter how much negative equity you have -- no longer is there a cap of being less than 25 percent underwater.
  • New HARP requires no minimum credit scores or income as long as your payment doesn't increase by more than 20 percent from your current payment. Even a bankruptcy or foreclosure is okay.
  • Refinance fees are capped at 0.75 percent, down from 2 percent. Moreover, fees are eliminated if you refinance to a term of 20 years or less.
  • Mortgage insurers have agreed to transfer policies to new lenders. This transfer ability removes a big barrier to refinancing under the hold HARP. In addition, if your old loan didn't have mortgage insurance, your refinance mortgage won't require it.
  • Refinance lenders under the program will be relieved of many of the guaranties they'd normally have to make when selling a loan to Freddie Mac and Fannie Mae. This should increase competition for your HARP refinance business.
  • Lenders have agreed to subordinate their second mortgage liens and not hold up HARP refinances.

How to check if you're eligible

If you think you are a candidate for a HARP refinance under the new guidelines, start by checking the following basic eligibility rules:

  1. To refinance through the new HARP, your mortgage must be owned or guaranteed by Fannie Mae or Freddie Mac. Look up your loan with Fannie Mae or Freddie Mac.
  2. You need to be employed or have a stable and verifiable income.
  3. You can have bad credit, but your mortgage payment history must be satisfactory. That means no more than one 30-day late payment in the last 12 months, and none at all in the last six months.
  4. You cannot have refinanced under the old version of HARP.
Remember, you are not limited to your own lender when refinancing. Any lender that will approve your loan is fair game. Complete the form on this site to find a lender now; you could find yourself with a new loan and a lower payment.