Another New Refi Program? Get the Facts!

During the 2012 State of the Union Address, President Obama announced another expansion of the federal mortgage refinance program :

That's why I'm sending this Congress a plan that gives every responsible homeowner the chance to save about $3,000 a year on their mortgage, by refinancing at historically low interest rates. No more red tape. No more runaround from the banks. A small fee on the largest financial institutions will ensure that it won't add to the deficit, and will give banks that were rescued by taxpayers a chance to repay a deficit of trust. (From the State of the Union Address)

The current versions of the refinance program (HARP and HARP II) allow homeowners whose loans are owned by Fannie Mae, Freddie Mac or the Federal Housing Finance Agency, to refinance to current historically-low interest rates, EVEN IF the loan value exceeds the value of the home (allows "underwater" homeowners the opportunity to refinance).


On Wednesday, February 1st, the president released additional information about the proposed expansion of the refinance programs:


The proposed program (HARP 3?) would allow ALL homeowners who are current on their mortgage — even those who do not have loans backed by Fannie, Freddie or FHFA and even if they're  underwater on their mortgage — to also refinance their loans.


The proposal put forward by the administration includes some details about the who would qualify:

• only owner-occupied, single-family homes are eligible.
• Homeowners must be current on their mortgage and not had a lat payment for at least the past six months; 
• Homeowners must have a minimum FICO credit score of 580; 
• The loan amount cannot exceed the current federal conforming loan limit. 

For those who meet the criteria, the program would allow for a streamlined application process in which lenders would only need to confirm that a homeowner is employed and the home would not have to be appraised.


NOW... What does this REALLY mean for the average Minnesota Homeowner who might want to refinance?

• Even though HARP II was announced in October of 2011, as of early February 2012, very few lenders and servicers have processes and procedures in place for homeowners to take advantage of the refinance program.  Any formal expansion to the program announced today would take MONTHS before a homeowner would likely be able to work out a refinance with their lender.  (See our blog post on the HARP 2.0 announcement in October, here)

• Most Importantly, this expanded program will require CONGRESSIONAL APPROVAL. Given the fact that we are in a rather contentious election year... approval by congress is far from certain.

We'll continue to monitor this program, and if the program expansion does become a reality, we'll notify Minnesota Homeowners via this blog and our website, here.

HARP Changes - What We Know, What We Don't

It is likely that President Obama will be announcing some major changes to the Home Affordable Refinance Program (HARP) on Monday, October 24th, 2011.  The Federal Housing Finance Agency, the agency that regulates Fannie Mae and Freddie Mac as well as the 12 Federal Home Loan Banks throughout the country, has issued a press release outlining some of the important changes to the HARP program.


What We Know:

• The goal is to prevent additional foreclosures by allowing additional underwater homeowners to refinance their mortgages at today's low interest rates and/or shortening the term of their mortgage.
• Most importantly, the current 125% Loan to Value limit (LTV Ceiling) will be removed, but there is still a MINIMUM LTV of 80%.  Borrowers that are underwater by any amount greater than 80% may be able to participate in HARP.
• Borrowers fees to participate in HARP will be reduced.
• To participate, borrowers must be current, have not been late on a payment in the last 12 months, and have a verifiable source of income.  Actual affordability ratio (how much income needed) has not been released.
• The new guidelines should waive the need for a full appraisal if a reliable Automated Valuation Model (AVM) is available on the property.
• Participation in HARP is a one-time opportunity.  If a homeowner has refinanced under the original HARP guidelines, they will NOT be able to refinance a second time under these new changes.
• Only mortgages that are owned by the Government Sponsored Enterprises (GSE's), -- Fannie Mae and Freddie Mac -- will be participating in the new program.  The mortgage must have been sold to Fannie Mae or Freddie Mac on or before May 31, 2009.  To determine if your loan is owned by Fannie or Freddie, you can use the following links:
• Fannie Mae Loan Lookup
• Freddie Mac Loan Lookup

What We Don't Know

This blog post was written on Monday 10/24/2011... and many of the details may change over time.  Please call a non-profit housing counselor for additional details about these HARP changes... or any other question you may have about your mortgage.

• When will homeowners actually be able to refinance their Freddie Mac- or Fannie Mae-backed mortgage?  Guidelines on the new program will be sent to lenders and servicers by November 15th.  After that, the lenders/servicers will have to convert those guidelines into actual policies and procedures.  This means that it may be mid-December or even early 2012 before a homeowner can actually participate.  In addition, the concept of the program is complicated by the fact that certain servicers DO NOT ORIGINATE loans and may not have the capacity to originate the new HARP loan - without extensive (and time-consuming) changes to their internal systems.  PLUS, as we've seen with the original HARP program, there may be inconsistencies from one servicer to another.
• What will happen to homeowners in the following circumstances:
• Multiple mortgages - second lien holders will have to agree to 're-subordinate' their loan to the newly refinanced loan.  While there is no risk to the junior lien holders... we don't know which, if any, second lien holders will agree re-subordinate their mortgages.
• Private Mortgage Insurance Holders - PMI holders have agreed to make the transfer of insurance from one loan to another easier... the details are still being worked out. 

Once again... as the guidelines to servicers and lenders will not be available until November 15th... it will take several additional weeks for the lenders and servicers to convert those guidelines into policies and procedures, meaning that it may a couple of months before homeowners can access this new phase of HARP.

Why Refi? Is it right for you?

According to a new article at MarketWatch based on CoreLogic data, more than a quarter of households that refinanced between January and June of 2010, chose a 15-year fixed-rate mortgage.  This compares to only 18.5% who chose that option in 2009, and is nearly three times the 9% that chose a 15-year refi in 2007.

Why is the 15-year refi becoming so popular?

• One possible explanation is that interest rates on 15-year loans are now so low that borrowers can handle the larger mortgage payment.  If someone has a 6.5% 30-year mortgage on a $200,000 house, their monthly payment is about $1,270.  Refinancing to a 15-year fixed rate at about 4%, means a payment of about $1,480.  An extra couple hundred dollars a month and the loan is paid off over a DECADE earlier.
• Could a second explanation be a change in our national psyche?  Is it possible that we as a nation are becoming more debt-averse?  Personal finance blogs and magazines are flourishing.  Recent reports show that we owe less on our credit cards and we're even paying off our car loans.  Hmm...  Your thoughts are welcome in the comments.

Now... paying off debt is a GREAT THING.  And refinancing from a 30-year to a 15-year loan can save a tremendous amount of money in interest payments over the coming years... but refinancing can also be dangerous!  The MN Home Ownership Center oversees a network of Refinance Counselors* (Housing Counselors) that provide home owners with an opportunity to compare a current mortgage against a potential refinanced mortgage or second mortgage. Counselors take time to compare the terms with you, and to tell you what those changes will mean for your monthly finances - in real terms - without trying to sell you ANYTHING.

 
For more information about Refinance Counseling in Minnesota - or if you're thinking about refinancing your mortgage - visit the MN Home Ownership Center's website, here.
 
 
* Minnesota law requires you obtain a certificate from a qualified "Refinance Counselor" before you refinance your loan if you have a "special mortgage" - a loan from a state, local or tribal government or nonprofit organization with payments that vary with income, zero or deferred interest or other unique conditions, and is highly recommended for ANYONE thinking about refinancing their mortgage.  A small fee for this service may apply.