Homeowners stuck with mortgages worth more than the value of their homes could get some additional relief in 2013 thanks to changes to the government-backed Home Affordable Refinance Program or HARP.

HARP was created in 2009 to help homeowners with Fannie Mae or Freddie Mac backed loans who are current on their mortgages but unable to refinance because the value of their home had declined too much. Now, new changes that are part of HARP 3.0 will open up the program to more homeowners.

“It’s a cumulative effect of a number of rules that reduce the risk for the originators and servicers,” says Bob Walters, chief economist at mortgage lender Quicken Loans in Detroit. As a result, he says more underwater homeowners will be able to refinance.

According to Walters, in the past couple of months Fannie Mae and Freddie Mac have reduced the risk to lenders and originators which has made them more comfortable lending to people with higher loan-to-value levels. “If you had a Fannie or Freddie loan and didn’t have the changes a lot of people would be excluded” from refinancing, says Walters. “Now the loan-to-value caps are being raised.”

Under the original HARP program, homeowners were eligible to refinance up to 125% loan to value which meant if your house was worth $100,000 and you owed $125,000 you would qualify if you had a Fannie or Freddie backed loan. With HARP 2.0, the cap was eliminated and now some lenders are starting to refinance up to 200% loan to value. So if your home appraises for $150,000, you would be eligible to refinance up to $300,000.

While lenders are willing to refinance consumers with higher loans to value ratios, Walters says homeowners who have been previously rejected for a refinance are reluctant to try again. “There’s a large contingency of people current on their mortgage that tried a couple of times and were told ‘we can’t help you.’ The biggest challenge is getting people to spend the time to see if we can help.”

HARP 3.0 Expands Eligible Borrowers

HARP 2.0 is slated to expire at the end of 2013 and expectations are that it will be replaced with HARP 3.0, which opens up the ability to refinance to a whole new set of homeowners, says Les Kramsky, executive vice president and general counsel to Silk Abstract Company, a title insurance agency and a real estate attorney in New Jersey. The main purpose of HARP 3.0 is to address mortgages that are not backed by Fannie and Freddie and for those people that have loans over $417,000, he says. “It would be a big deal for people with jumbo loans. With HARP 2.0 they can’t qualify for a refinance.”

Similar to HARP 2.0 requirements, in order to qualify for the program consumers need to have been on time with mortgage payments for the last six months and have only been late once in the past 12 months. They also have to have less than 20% equity in the home. Since there isn’t a clear date as to when HARP 3.0 will pass, Kramsky says homeowners with Fannie and Freddie backed loans should try to refinance now but for those with jumbo loans or ones not backed by Fannie or Freddie they should sit tight until HARP 3.0.

“HARP 3.0 will open the door to a lot of opportunity for homeowners,” says Kramsky. “This will be very big for homeowners. There will be fewer foreclosures and people will have more money in their pocket which will stimulate the economy. HARP 3.0 is a win win for everyone.”

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