The federal government’s Home Affordable Refinance Program (HARP), designed to help refinance existing mortgages backed by Fannie Mae and Freddie Mac, has been extended to June 30, 2011.

HARP releases federal funds to help homeowners, who would otherwise be unable to do so, refinance their underwater homes.

A mere 20,000 of the 4 million mortgages refinanced by Fannie Mae and Freddie Mac in 2009 were HARP refinances.

first tuesday take: In California, HARP is very limited in scope, and is of no use to most of our underwater homeowners. Only those who are current on their payments (read: employed and not in default) and whose mortgages do not exceed 125% of the current market value of their home are eligible for HARP refinances.

This excludes almost all underwater home-owning Californians, which may be a good thing. [For more information on underwater homeowners, see first tuesday’s March 2010 article The underwater homeowner, his future and his agent: a balance sheet reality check.]

Without HARP, an underwater homeowner’s next option is to turn to the equally unsuccessful Home Affordable Mortgage Modification Program (HAMP) for government-assisted modified financing. HAMP offers incentives for lenders to reduce monthly payments to 31% of a homeowner’s gross income, but only if the lender agrees to the permanent modification of the loan they have issued.

HAMP modifications, as currently experienced, have no effect on the principal balance of a loan, and, at best, have simply postponed the homeowner’s default to a later date. However, HAMP is virtually non-existent for struggling California homeowners, as HAMP also restricts its beneficiaries to a 125% maximum loan-to-value (LTV). The approximate average LTV for underwater homeowners in California is 135%, completely barring them from any chance of government supported help – despite how ineffective that help may be. [For more information on HAMP, see first tuesday’s February 2010 article, New procedures for the home affordable modification program.]

For the time being, walking away is the only long-term option sure to provide future benefit to the families of prudent and informed California homeowners who are faced with a negative equity in excess of a 115% LTV. [For more on the merits of walking away, see first tuesday’s December 2009 article, Homeowners, abandoned by government and lenders alike, must yield their walkaway.]

Re: “FHFA Extends Refinance Program By One Year” from the Federal Housing Finance Agency