July 26, 2010

Underwater Homeowners Refinancing Their Conventional Mortgage? Yep ... There's a Program for That!

In 1980, Kool and the Gang were signing
C-e-l-e-b-r-a-t-e Good Times … Come On and celebrate is what many homeowners are doing now as they trade in what was once considered an awesome interest rate for and even lower one today. On July 15, 2010 Freddie Mac’s chief economist, Frank Nothaft said:

“fixed rate mortgages continued to hover at 50-year lows, thereby supporting homebuyer affordability and refinance activity. Over the past month, about four out of five conventional loan applications and more than half of FHA and VA loan applications were for refinance. Compared to the recent peak in 30-year fixed interest rates 13 months ago (week of June 11, 2009), current rates are a full percentage point lower. With today’s rates, homeowners, would save about $1500 in payment each year on a $200,000 loan compared to rates last June”.

People were buying homes in the 80’s with interest rates averaging 13.74 (1.8 Points). Imagine that! Check out Freddie Mac history of 30-Year Fixed mortgage rates dating back to 1971 at http://www.freddiemac.com/pmms/pmms30.htm.

Back to the present … if you think refinancing a conventional mortgage is only an option for homeowners with 20 percent or more equity, you’re in for a pleasant surprise. HARP - The Home Affordable Refinance Program is designed to provide refinance opportunities to borrowers with mortgages owned or guaranteed by Fannie Mae or Freddie Mac, who have a current payment history but due to declining property values have been unable to refinance to a lower interest or from an ARM to a fixed rate loan.

In 2008 a Bay Area homeowner purchased a home for $737,500 and financed $590,000 at 5.875%. On the refinance loan application, we estimated current market value at $718,000, a new loan amount of $572,850 and interest rate of 4.75% with APR of 4.80%. The loan application and credit report was submitted to Fannie Mae’s DU Refi Plus automated underwriting system for a decision. Fannie’s findings came back as “approved” AND no appraisal required! The homeowner’s mortgage payment dropped $501/mo.

The 2008 purchase price was $360,000 and loan amount $288,000. The Fannie Mae refinance (DU Refi Plus) included an estimated value of $320,000 and new loan amount of $283,000. That made the LTV 88%. Fannie Mae waived a full appraisal which reduced the borrower's closing costs and saved time processing the loan. The borrower's new interest rate is saving them $227/mo.


How do I find out who owns my mortgage?
For Fannie Mae look up
CLICK HERE and for Freddie Mac CLICK HERE. If you don’t get a positive answer, call the customer service dept for your loan servicer and ask them who owns your mortgage.

Do I have to refinance with the same lender that is servicing my loan?
You can but are NOT required to. Fannie and Freddie have established basic loan guidelines but all lenders add additional qualifying requirements. Your loan scenario may not work with one lender but is OK with others. You can shop around yourself or use the services of a mortgage broker who will do it for you.

How much underwater can I be?
Fannie and Freddie have established a max LTV of 125 percent. Example: you owe $300,000 and your home is worth $240,000. Not all lenders allow LTV’s up to 125 percent. However, 105 percent is more widely accepted.

Will I be required to pay mortgage insurance?
If the original LTV of the existing loan was 80 percent or less, no mortgage insurance is required on the new refinance loan.

No doubt you have more questions as each homeowner's circumstance are unique and need to be considered to qualify. Program guidelines are extensive and changing all the time. We are helping California homeowners find solutions to their real estate financing needs and would like to help you. We are a Direct Lender and Mortgage Broker. Call Barbara at 916.932.2352 for more information.