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.


CASE STUDY #1
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.


CASE STUDY #2
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.


QUESTIONS & ANSWERS

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.

Minimum FICO Scores Are Increasing As DTI is Decreasing

Several lenders have announced the minimum FICO score for an FHA or VA loan is increasing to 640. They are also imposing an adjustment up to .375% to the rate if your qualifying FICO score is 660 or below. Does this mean you can't get a loan if your FICO is below 640? Not yet … there are lenders who accept lower credit scores but you can expect to pay a higher rate. Fannie’s minimum FICO is 620 but the price adjustments for scores between 620 and 719 will make your interest rate explode!

Along with minimum FICO scores increasing, the debt-to-income ratio (DTI) is decreasing. Fannie Mae announced that beginning December 12, 2009 their underwriting guidelines will be revised to max DTI at 45%. There can be exceptions for higher compensating factors. Your DTI ratio is calculated by taking the proposed housing costs (including property taxes, homeowners insurance and mortgage insurance if applicable) coupled with your minimum monthly payment on existing credit card and installment accounts compared to your gross monthly income. More reasons for you to get your credit scores and outstanding debts in order before applying for a mortgage.

Interested in a Home Loan Larger Than $417,000?

They are called Conforming Jumbo, Conforming High Balance or even Agency Jumbo. All terms referring to a home loan between $417,001 and $729,750 in high costs areas for a single family residence. It can be confusing because there are permanent loan limits and temporary loan limits throughout the U.S.

Fannie Mae and Freddie Mac raised their conforming loan limits in 2008 during the credit crunch to ensure liquidity for loans greater than $417,000 in high cost real estate markets. These temporary high balance limits have been in place since 2008 but were scheduled to expire at the end of 2009. Good news … there will be no change for 2010. If allowed to expire, the temporary ceiling of $729,750 would have been reduced to the permanent ceiling of $625,500. For Sacramento, Placer and El Dorado counties, the temporary high balance limit remains at $580,000 through 2010. The permanent limit is $474,950. For most counties in the Bay Area it’s $729,750. The permanent limit is $625,500.

The reason for all the hoopla is because interest rates on loans that meet Fannie or Freddie limits, whether they be conforming or high balance, are priced significantly better than a Jumbo loan. Bottom line … it’s good for the housing market.

Footnote:
1) Temporary high balance loan limit of $729,750 established in the Economic Stimulus Act of 2008
2) Permanent high balance loan limit of $625,500 established in the Housing and Recovery Act of 2008