Archive for the 'Mortgage Refinance' Category

The Home Affordable Refinance Program (HARP) is a U.S. government program that helps homeowners refinance, even if they are underwater. The first version of HARP had problems, and relatively few homeowners were helped.

The latest version of HARP, which debuted at the end of 2011, should remove many of the obstacles to refinancing, even for people with bad credit. Mortgage lenders began accepting applications for this program on December 1, 2011.

If you tried to refinance under the old HARP, you were probably disappointed. There were multiple reasons that HARP failed to provide widespread help to homeowners. Many homeowners owed more than the maximum allowable 125 percent of their home's value, or had seen drops in income or credit scores that made them ineligible for refinancing. In addition, refinance fees were too high for many to consider one.

Mortgage lenders' and insurers' interests were also stacked against HARP 1.0. Borrowers needing mortgage insurance had to refinance with their current lenders, and mortgage insurers wouldn't transfer policies. Some lenders were unwilling to voluntarily refinance their existing customers to lower rates, and lenders with second mortgages refused to subordinate their liens to the refinanced loans.

Considering how much disappointment has been caused by the unfulfilled promises of previous mortgage relief plans, you may not believe that the new version of HARP is any better. However, it's worth checking out the new HARP guidelines. You may be pleasantly surprised to find that you qualify to refinance -- even with bad credit.

Why HARP 2.0 makes it easier to refinance

Changes to the HARP plan have eliminated many of the obstacles to refinancing for underwater homeowners. Here are the critical changes that should make it easier for homeowners to refinance:

• New HARP imposes no maximum loan-to-value. You can refinance no matter how much negative equity you have -- no longer is there a cap of being less than 25 percent underwater.
• New HARP requires no minimum credit scores or income as long as your payment doesn't increase by more than 20 percent from your current payment. Even a bankruptcy or foreclosure is okay.
• Refinance fees are capped at 0.75 percent, down from 2 percent. Moreover, fees are eliminated if you refinance to a term of 20 years or less.
• Mortgage insurers have agreed to transfer policies to new lenders. This transfer ability removes a big barrier to refinancing under the hold HARP. In addition, if your old loan didn't have mortgage insurance, your refinance mortgage won't require it.
• Refinance lenders under the program will be relieved of many of the guaranties they'd normally have to make when selling a loan to Freddie Mac and Fannie Mae. This should increase competition for your HARP refinance business.
• Lenders have agreed to subordinate their second mortgage liens and not hold up HARP refinances.

How to check if you're eligible

If you think you are a candidate for a HARP refinance under the new guidelines, start by checking the following basic eligibility rules:

The Home Affordable Refinance Program (HARP) is a program of the federal government aimed at helping mortgage borrowers, particularly those with little or negative equity for a traditional refinance. When it first debuted, it didn't impress. A big reason for HARP's failure was that it depended on lenders voluntarily reducing the interest rates of captive borrowers who were repaying their loans.

A new version of HARP, dubbed HARP 2.0, was announced in late 2011 to try to address some of the original HARP's shortcomings, and Fannie Mae and Freddie Mac released guidelines on the new program in November.

If you're underwater and have a Fannie Mae or Freddie Mac loan in good standing, you may be able to refinance to a lower rate today. (You cannot get a HARP 2.0 refinance is you've already gotten a HARP refi under the old program, though.) Here's an overview of the HARP 2.0 changes.

Major changes with HARP 2.0

Borrowers no longer captive

With HARP 2.0, homeowners can go with any lender willing to refinance them -- and mortgage lenders should be more willing now than in the past to finance your home. Previously, mortgage lenders took a risk in refinancing underwater borrowers because Fannie and Freddie might force them to take back bad loans, but that's changed. In particular:

• Fannie Mae will not impose any maximum debt-to-income (DTI) ratio or other underwriting criteria as long as the payment is not increasing by more than 20 percent (which could happen if, for example, you refinance from a 30-year loan to a 15-year mortgage).
• Fannie Mae will not require the lender to guaranty that the borrower has an acceptable credit history (other than mortgage payment history requirements of this HARP program).
• Fannie Mae will not hold the lender accountable for undisclosed liabilities (except when the payment increases by more than 20 percent).

Fees have been lowered

Lender liability reduced on guaranteeing borrower income

HARP 2.0 takes lenders off the hook in guaranteeing your income, liabilities and credit rating -- so it appears that HARP 2.0 could help homeowners refinance even if they have bad credit.

If you're interested in a refinance under HARP 2.0, read more about refinancing with bad credit and start the process to obtain lender quotes.

Mortgage rates are at all-time lows again -- which means that if you can refinance to a lower rate, you could save significantly on your monthly mortgage payments. Aside from the hoops you have to jump through to qualify, what if your home is in a "declining market"? Your refi might not be smooth sailing.

In 2008, Fannie Mae and Freddie Mac implemented a new policy of increasing requirements for borrowers whose homes were in zip codes tagged as "declining markets." The mortgage behemoths backed down after protesters accused them of redlining, an illegal practice of discriminating against minority-dominated neighborhoods. But that doesn't mean the idea hasn't lingered.

What is a declining market?

Your neighborhood is a declining market if an appraiser says it is, or if the (non-government) mortgage lender you're working with says it is. When you compare mortgage quotes, ask what the lender's declining market policy is and if your neighborhood is considered a declining market. If the lender works from a list and you're on it, you may have to pay more, provide more equity or come to the table with better credit.

Even if your lender doesn't keep a list or you're not on it, you still might not be in the clear. Several years ago, Fannie Mae created Form 1004MC, the "Market Conditions Addendum to the Appraisal Report." This form is required with virtually all one- to four-unit property appraisals and determines how your refinance is treated. Again, ask every lender you shop with how it classifies home markets and how it will affect your refinance if your home is in a "slightly declining" or "substantially declining" market. If you have enough equity, you may still be able to refinance.

How appraisers assess your market

In calculating the supply, appraisers first determine the rate at which homes are being sold (called an absorption rate). If 60 properties were sold in the last six months, the absorption rate is 10 per month. If there are 100 homes on the market, that's a ten-month supply.

Is this good or bad? That depends. Ten months of inventory would normally be considered an over-supply. But what if the absorption rate six months ago was 5 homes per month? What if there were 200 homes on the market six months ago? You could conclude that the market is improving, not declining.

Sales data are examined at three-month intervals to see whether prices are stable, increasing or decreasing. Finally, the days-on-the-market statistic is checked. Are home sales speeding up or slowing down? Are buyers getting more concessions or fewer? All of these factors are considered when assessing the market trends of your area.

How to assess market trends yourself

Want to get a rough idea of your local market? See where your metro area or zip code falls on these lists:

• Sun Trust Bank Declining Markets Index
• United Guaranty Mortgage Insurance

You can also check home value estimate sites to keep tabs on home price trends in your neighborhood.

These lists or models won't give you an accurate valuation of your home, but they are quite good at flagging trends.

Back in 2008, the Department of Veterans Affairs became concerned about the number of VA-eligible homeowners who were paying high rates and unable to refinance.

The Veterans' Benefits Improvement Act of 2008 changed the VA mortgage refinance guidelines to allow refinances from non-VA loans up to 100% of the home's value (the previous limit of 90%). One reason for instituting this change was, according to Secretary of Veterans Affairs Dr. James B. Peake, "to allow VA to assist a substantial number of veterans with subprime mortgages to refinance into a safer, more affordable, VA guaranteed loan. Veterans in financial distress due to high rate subprime mortgages are potentially the greatest beneficiaries," he added.

Bad credit home loans and VA refinancing

Okay, so you had stinky credit when you bought your home. And you aren't exactly wearing a halo today. So who do you have to kill or bribe to get a VA refinance? No one.

The VA doesn't expect perfection when it guarantees your mortgage. Here's what its guidelines say about folks who have had some financial boogers in their closets:

"In circumstances not involving bankruptcy, satisfactory credit is generally considered to be reestablished after the veteran, or veteran and spouse, have made satisfactory payments for 12 months after the date of the last derogatory credit item."

So if you have paid your bills on time for the last year and are not dodging creditors, you have a decent shot at refinancing out of a bad credit mortgage.

What about Consumer Credit Counseling?

If you are in a debt management plan, that is, one of those arrangements in which you pay a monthly check which is distributed to your unsecured creditors, you may be considered for a VA refinance after 12 consecutive on-time payments have been made to the plan.

What about debt settlement?

Debt settlement is a different animal--because the debt settlement companies hold creditors' feet to the fire by having you NOT make your payments, you will not have a satisfactory payment history for at least a year, and you may have collection accounts and legal judgments popping up even then.

What about bankruptcy?

Bankruptcy is not the end of the world. If two years have passed since your Chapter 7 bankruptcy was discharged, it can be disregarded. This mayeven be possible after only one year if you have successfully reestablished credit(which you could do if you continued to pay your mortgage on time every month) and the bankruptcy was caused by circumstances out of your control like unemployment or illness. You can be refinanced while still in a Chapter 13 plan if you have made 12 payments on time and the trustee approves.

What about foreclosure?

Foreclosure is treated like a bankruptcy, two years distance and you're good. However, if the mortgage involved in the foreclosure was a government-backed loan like an FHA, VA, or USDA mortgage, you won't be able to get another government loan for at least three years after the mortgage insurance claim was paid (and that can be a long time after the actual foreclosure).

If you would love to refinance but don't have home equity, and you owe more on your mortgage than your home is worth, a program that I and other bloggers wrote off months ago may finally be in a position to help.

The FHA Short Refinance, which requires your current lender to write down the balance of your mortgage to less than the property is worth, lets you replace your current loan with an FHA mortgage. Until now, though no major lenders would work with the program and in its first six months only 44 people--yes that's not a misprint--only 44 people got refinances this way.

And the big five are….drum roll please….

Bank of America, Wells Fargo, JP Morgan Chase, Citigroup and Ally Financial/GMAC are all reportedly participating in the struggling program, according to spokespeople for HUD and JP Morgan Chase.

This sudden desire to play ball came only a few days after the House of Representatives voted to kill the short Refi program (Obama says he will veto it, keeping the program alive). Republicans (and just about everyone in the mortgage industry) have criticized the $8 billion program as weak and poorly-conceived.

I can't help wondering if the five lenders were cajoled by the Administration into helping out (carroted) or scared into getting with the program before something more burdensome was forced on them by the Administration or Congress (sticked).

If anyone reading this has applied for the program I love to hear about your experience.

If your local economic has tanked and home values are still in the basement, you might be stuck with your home for a while. But if you live in the boonies, look into low-cost money for home repair from the USDA. Freshen up the place and make it feel, if not new, a bit new-ER. ...

Unless you live under a rock, you can't miss the headlines proclaiming record "affordability" of homes due to low mortgage rates and declines in housing prices. But for the cash-strapped, this affordability is an elusive thing. And those homeowners who do not have much cash are struggling to make crack that monthly mortgage nut in ...