(MoneyWatch) The federal government has extended the Home Affordable Refinance Program for two more years in a move to offer relief to people who owe more on their mortgages than a home is worth.
Created in 2009 to address the growing foreclosure crisis, HARP was set to expire at year-end. But the Federal Housing Finance Agency said today that homeowners could applying for refinancing under the program until the end of 2015.
", proving a useful tool for reducing risk," said FHFA acting director Edward DeMarco in a statement. "We are extending the program so more underwater borrowers can benefit from lower interest rates."
In extending the program, the government is making the assumption that more homeowners will need help in the coming years. According to RealtyTrac, a real estate data company, 10.9 million homeowners are still deeply "underwater" on their properties, with an average loan-to-value ratio at or above 125 percent.
"Even if that number shrunk by 2 million each year, it would still take five years to get all those people out" from a negative equity situation, said Daren Blomquist, vice president of RealtyTrac.
While experts have credited HARP as one of the few government programs aimed at helping struggling homeowners following the housing crisis, Zillow chief economist Stan Humphries points out that the program will succeed only as long as market conditions don't drastically change.
"HARP is an important option that has helped millions of underwater homeowners refinance in a relatively tax revenue-neutral way," he said. "But the success of HARP depends on low interest rates, and there's no doubt that rates will begin to rise in the next few years."
Should interest rates reach pre-crash levels of 6 or 7 percent in the next three years, most homeowners would have little incentive to refinance.
To be eligible for a HARP refinance, homeowners must meet several guidelines:
- The loan must be owned or guaranteed by Fannie Mae or Freddie Mac
- The mortgage must have been sold to Fannie Mae or Freddie Mac on or before May 31, 2009
- The mortgage cannot have been refinanced under HARP previously, except for a Fannie Mae loan that was refinanced under HARP from March 2009 to May 2009
- A borrower's current loan-to-value ratio must be greater than 80 percent
- The borrower must be current on their mortgage payments, with no late payments in the last six months and no more than one late payment in the last 12 months
The FHFA will launch a nationwide campaign to encourage homeowners to take advantage of the refinancing program. The program may have to be altered to allow more homeowners, particularly those with private loans, to participate, experts say.
"I believe we're probably getting close to capping out those homeowners that qualify," Blomquist said. "The people who still need that help are the ones that can't get it yet."