There were millions of borrowers WHO found themselves in a very difficult predicament after the U.S. housing bubble burst in 2008. When inventories soared nationwide, everyone saw home prices plummet. Many of the new homeowners saw the values of their homes drop far below the balance of their mortgages, or nearly so. Then later, these homeowners were also prevented from taking advantage of lower interest rates through refinancing, being that banks traditionally require a loan-to-value ratio (LTV) of 80% or less to qualify for refinancing without private mortgage insurance (PMI).
For example a house that may have been purchased for $160,000 but is now worth $100,000 because the market decline. Further, assume the homeowner owes $120,000 on the mortgage. In this scenario, the loan-to-value ratio would be 120%, and if the homeowner chose to refinance, he would also have to pay for private mortgage insurance. If the homeowner were not already paying for PMI, the added cost could nullify much of the benefit of refinancing, so the homeowner could be effectively prohibited from refinancing.
As part of the 2012 State of the Union Address, President Barack Obama referenced a plan to give “every responsible homeowner the chance to save about $3,000 a year on their mortgage”. Within the mortgage industry, this plan is being referred to as HARP 3.0. The plan has not passed. HARP 3.0 is expected to expand HARP’s eligibility requirements to homeowners with non-Fannie Mae and non-Freddie Mac mortgages, including homeowners with jumbo mortgages and Alt-A mortgages, those whose original mortgages were stated income, stated asset, or both.
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