Mortgage insurance creates a bottleneck
According to the U.S. government website Making Home Affordable, if your existing loan has private mortgage insurance (PMI or simply MI), you will need the same amount of MI coverage for a refinance under HARP.
If your existing loan did not require MI when you got it, you will not be required to obtain MI coverage as part of a refinance under HARP. This is true even if a drop in home value means your current loan-to-value would require MI under a new mortgage.
Lenders like mortgage insurance when it's a good risk. But MI can create a roadblock to getting your mortgage loan refinanced through HARP. It's a Catch-22 situation for a refinance on an underwater home: If you need MI coverage, it's hard to get it, but if you don't need MI coverage, the lender considers your loan a greater risk.
What if you already have mortgage insurance?
Homeowners with MI who want to refinance under HARP often go to a new lender for the lowest mortgage rates and then find that they can't get MI through the new lender. This is because mortgage insurers have been reluctant to provide coverage to underwater homes.
This often compels the homeowner to stay with their current lender. The problem with staying put, though, is that the current lender has no incentive to reduce the borrowers' interest rates (and the lender's profit). Result: Refinance doesn't happen.
What if you don't have mortgage insurance?
For refinances of mortgage loans not currently carrying MI, a new MI policy is not required. But this means that the lender or insurer has to take on more risk without getting extra compensation for doing so. And the limits to risk-based pricing adjustments mean that other loans without those limitations are more profitable, so the HARP refis get put on the back burner while other loans are processed. Result: Refinance doesn't happen.
Is HARP right for you?
Bottom line: If you've made your mortgage payments on time and your credit is relatively unscathed, but you owe more than your home is now worth, you may be a good candidate for a HARP refinance as a chance to reduce your monthly payments and rebuild home equity.
If you meet the lender's qualifications, it's still possible to get a HARP loan approved, but prepare to shop around and provide a lot of documentation, even if your loan is underwritten electronically. You may have better luck with a new lender than your current one. Use the forms on this page to compare mortgage rates and find mortgage lenders for your situation.