Although the country is showing signs of recovery from the economic crisis of 2008, many Americans are still feeling its effects. One wide-spread problem concerns the large number of “underwater homes”, or homes as to which the homeowner owes more on the mortgage than the property is worth. Tragically, many of these homeowners have had their financial worlds turned upside-down, given that many such homes had a fair amount of equity prior to the economic crisis.

As part of the Emergency Economic Stabilization Act, the Obama Administration implemented the Home Affordable Refinance Program (HARP). Under this federal program, eligible borrowers are entitled to a refinance that can lower the interest rate. Although the program is not designed to reduce any principal, it can save a homeowner money by reducing the amount of interest paid over the life of the loan. As a result, it is important for lawyers to know how HARP works.

The government’s Making Home Affordable website provides that a homeowner is eligible when the following criteria are met:

• The mortgage must be owned by Fannie Mae or Freddie Mac.
• The mortgage must have been sold to Fannie Mae or Freddie Mac prior to June 1, 2009.
• The mortgage must not have been previously refinanced under HARP (unless the refinance was for a Fannie Mae loan and took place March – May 2009).
• The current loan to value ratio must be greater than 80%.
• The homeowner must be current on his payments, with no delinquencies in the 12 months preceding the refinance.

Fannie and Freddie have tools on their websites that make it easy to determine if either of the entities own your loan, and whether the loans were so acquired prior to June 1, 2009. To calculate the loan to value ratio, simply divide the total unpaid balance of the mortgage by the value of the home.  If the total is 0.80 or more, then the ratio qualifies.

It is unfortunate that recent events have resulted in numerous underwater homes.  However, HARP provides some hope for homeowners, by lowering monthly payments, and reducing interest over the life of the loan.  Assuming property values increase, homeowners who take advantage of HARP may successfully protect their investments.