About Government Refinance and Home Purchase Programs

We will likely never see mortgage interest rates this low again. If you have considered looking into a refinance contact us in the sidebar now. It never hurts to get an estimate. See this from a recent LA Times blog post:

The interest rate for a 30-year mortgage fell for the eighth time in nine weeks, according to a widely watched survey, with the record lows triggering the highest volume of home refinancing in 15 months.

Freddie Mac’s weekly report on lenders said solid borrowers with 20% down payments or home equity were being offered 30-year fixed-rate loans at an average of 4.42% this week, down from 4.44% a week earlier. The borrowers would have paid 0.6% of the loan amount in upfront lender fees.

The average 30-year interest rate recorded by the survey has not risen in nine weeks, although it remained flat at 4.57% for the weeks ending July 8 and July 15.

The rate this week on 15-year fixed loans also edged down to an average of 3.90% compared with 3.92% the previous week, with 0.6% in lender fees.

For the last few years borrowers who had enough equity in their home to refinance their first mortgage but who were underwater when they combined their first and second mortgage had the option of refinancing the first mortgage only into an FHA loan as long as the second mortgage agreed to stay in second lien position. These so-called “subordination deals” were fairly complicated and never became very popular but they were at least an option. But recently the FHA announced it will no longer allow such subordination deals.

We get this from the recent FHA mortgagee letter on the topic:

This Mortgagee Letter eliminates the unlimited Combined Loan-to-Value (CLTV) ratio that was first introduced in Mortgagee Letter 2007-11.

The old policy is being replaced with the questionable new FHA short refinance program.

UPDATE (2012): On most FHA streamlines (FHA to FHA refinances) the FHA does allow subordinations now as long as the combined loan to value (CLTV) is lower than the value the FHA placed on the home at the time the current FHA loan was completed. COntact us in the sidebar to learn more.

If you have considered a refinance for your home now is the time to contact us in the sidebar. The government-backed mortgage programs remain some of the best options available for most people. We get this from a recent AP report:

Mortgage rates dropped to the lowest level in decades for the sixth time in seven weeks, offering the most attractive opportunity for those who qualify to refinance or purchase a home.

Government-controlled mortgage buyer Freddie Mac said Thursday that the average rate for 30-year fixed loans this week was 4.49 percent, down from 4.54 percent last week. That’s the lowest since Freddie Mac began tracking rates in 1971.

The average rate on the 15-year fixed loan dropped to 3.95 percent, down from 4 percent last week and the lowest on record.

Rates have fallen since spring as investors seek the safety of U.S. Treasury bonds. That has lowered the yield on Treasurys. Mortgage rates tend to track those yields.

The last time home loan rates were lower was during the 1950s, when most mortgages lasted just 20 or 25 years.

There is another change coming to the FHA mortgage insurance guidelines on October 4, 2010. Starting on that date the upfront mortgage insurance premium (MIP) for FHA loans is scheduled to be reduced from 2.25% to 1.00%. That should reduce closing costs on FHA loans significantly going forward. However the monthly mortgage insurance fees will be increasing from 0.55% annually to at least 0.90% which will increase monthly payments for new FHA loans. Here is a bit from a recent HousingWire article on the subject:

“While premium increases are never ideal, this bill was necessary to help improve the strength and stability of FHA’s single family programs,” said MBA chairman Robert Story Jr. “We are encouraged that FHA Commissioner [David] Stevens has indicated he may not need to raise premiums to the maximum, and we believe that that a small increase in the annual premium, coupled with a decrease in FHA’s upfront premium [calculated in the chart below, from the FHA], will help stabilize FHA while lowering closing costs for many borrowers.”

The FHA recently announced the details of its new short refinance program. The idea of being able to obtain a short refinance has many borrowers excited about the prospects of having tens or even hundreds of thousands of dollars of debt wiped away. The problem is that lenders are normally not at all excited in losing tens or hundreds of thousands of dollars and the new program requires the full cooperation and approval of those lenders.

Lenders question: What’s in it for us?

Mortgage lenders/banks are for-profit institutions so they will always ask “what’s in it for us?” when a borrower seeks a loan modification or short refinance. In the case of the new FHA short refinance program we fail to see the benefit to lenders for participating. Normally the only time a lender would seriously consider participating in a principal write-down is if the only choices left to them were to foreclose on a property or to grant a short refinance. That is because foreclosing usually is more expensive for the lender than the principal write-down would be. But based on the requirements of the new FHA program lenders will never be faced with those two options. That is because once a borrower falls behind on mortgage payments that borrower is no longer qualified for the FHA short refinance program to begin with. In other words, there is virtually nothing to gain for a current lender to agree to write down principal on mortgage because the people asking for them to employ the new FHA short refi program are not considered foreclosure risks to begin with.

The one thing that the new program does do is clear away some of the regulatory snags regarding getting an FHA loan. But based on what we can see so far, the fundamental idea behind the plan is deeply flawed and thus we don’t expect to see very many lenders granting these kinds of principal write downs at all.

Don’t give up

While we are skeptical of this new program there are several other programs in place that have a proven track record. Please contact us in the sidebar today to learn more about the available programs that could assist your family.

Here are some of the details from the recent published FHA mortgagee letter on the new FHA short refinance program. Contact us in the sidebar to learn more about the programs that best apply to you:

On March 26, 2010, the Department of Housing and Urban Development (HUD) and the Department of the Treasury (Treasury) announced enhancements to the existing Making Home Affordable Program (MHA) and Federal Housing Administration (FHA) refinance program that will give a greater number of responsible borrowers an opportunity to remain in their homes. These enhancements are designed to maintain homeownership by providing borrowers, who owe more on their mortgage than the value of their home, opportunities to refinance into an affordable FHA loan. This opportunity allows borrowers who are current on their mortgage to qualify for an FHA refinance loan provided that the lender or investor writes off the unpaid principal balance of the original first lien mortgage by at least 10 percent. …

Eligibility
Participation is voluntary and requires the consent of lien holders. In order for a loan to be eligible, the following conditions must be met:

1. The homeowner must be in a negative equity position;
2. The homeowner must be current on the existing mortgage to be refinanced;
3. The homeowner must occupy the subject property (1-4 units) as their primary residence;
4. The homeowner must qualify for the new loan under standard FHA underwriting requirements and possess a “FICO based” decision credit score greater than or equal to 500;
5. The existing loan to be refinanced must not be a FHA-insured loan;
6. The existing first lien holder must write off at least 10 percent of the unpaid principalbalance;
7. The refinanced FHA-insured first mortgage must have a loan-to-value ratio of no more than 97.75 percent;
8. Non-extinguished existing subordinate mortgages must be re-subordinated and the new loan may not have a combined loan-to-value ratio greater than 115 percent;
9. For loans that receive a “refer” risk classification from TOTAL Mortgage Scorecard (TOTAL) and/or are manually underwritten, the homeowner’s total monthly mortgage payment, including the first and any subordinate mortgage(s), cannot be greater than 31 percent of gross monthly income and total debt, including all recurring debts, cannot be greater than 50 percent of gross monthly income;
10. FHA mortgagees are not permitted to use premium pricing to pay off existing debt obligations to qualify the borrower for the new loan;
11. FHA mortgagees are not permitted to make mortgage payments on behalf of the borrowers or otherwise bring the existing loan current to make it eligible for FHA insurance; and
12. The existing loan to be refinanced may not have been brought current by the existing first lien holder, except through an acceptable permanent loan modification as described below.

Principal Write off
The mortgagee must ensure that the existing first lien holder writes off at least 10 percent of the unpaid principal balance on the first lien. The short payoff serves as payment in full for any debt extinguished.

…

Combined Loan-to-Value Ratio
Notwithstanding 24 CFR 203.32(c)(3), the combined amount of the new FHA-insured first mortgage and any subordinate non FHA-insured lien may not exceed 115 percent.

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Second Lien Extinguishment and Servicer Incentive
To facilitate the refinancing of new FHA-insured loans under this program, Treasury will provide incentives to existing second lien holders who agree to full or partial extinguishment of liens effective on all case numbers assigned on or after September 7, 2010. To be eligible for incentives, the existing second lien mortgage servicer must: Execute a Servicer Participation Agreement with Treasury to participate in the Making Home Affordable Program; and, Agree to fully release the borrower from all obligations to repay the amount forgiven.

Existing second mortgage lien servicers will be entitled to a one time incentive of $500 for each successful closing. Existing second mortgage lien investors will be entitled to an incentive based on the combined loan to value of the existing lien and all senior liens associated with the mortgage.

The head of the FHA announced that the details of the new short refi program from the FHA should be available soon. Here are some bits from the HousingWire article on the subject:

US Department of Housing and Urban Development (HUD) secretary Shaun Donovan said details for a new “FHA Short Refinance” program would be announced this week, while speaking at the National Association of Real Estate Brokers (NAREB) conference in Fort Worth, Texas Tuesday.

According to a mortgagee letter sent out today, the new program would provide additional refinancing options to underwater homeowners starting Sept. 7. To be eligible for the new loan, the homeowner must be underwater but still current on the mortgage. A credit score of 500 or better is required, and the borrower’s existing first-lien holder must agree to write at least 10% of the unpaid principal balance.

It must bring the borrower’s combined loan-to-value ratio to no more than 115%. The existing refinanced loan cannot be an FHA-insured one. Once refinanced and insured by the FHA, it must have a loan-to-value ratio of no more than 97.75%.

Keep in mind that lenders must agree to the principal write down for this program to work and lenders have historically not been thrilled with that idea. The article continued:

Market players have come out saying a government-induced refinancing wave is unlikely. Barclays Capital, Credit Suisse and JPMorgan Chase have each said such a program would require too many logistical hurdles and would deviate away from recent monetary policy.

Contact us in the sidebar to learn more and see which programs apply to you.

We get this report from the folks over at HousingWire:

The 30-year fixed-mortgage rate (FRM) dropped week-to-week nationally averaging 4.28%, according to Zillow Mortgage Marketplace’s weekly update. This is down 0.1% and a new record low according to their data. Last week’s averages remained steady.

Regionally 30-year rates are varying, but the majority of states saw a drop. California’s current rate is 4.33%, down from 4.34% last week, as is Colorado’s at 4.26%, down from 4.28%. Rates substantially decreased in New York to 4.23% (from 4.46%), Massachusetts to 4.28% (from 4.61%), Florida to 4.18% (from 4.33%) and Washington to 4.36% (from 4.56%) from last week.. Texas is down to 4.27% from 4.36% and Illinois state average is down to 4.33% from 4.31%.

Zillow reported the rate for 15-year fixed home loans at a national average 3.85%, while the rate for a 5-1 adjustable-rate mortgage (ARM) is at 3.27%.

These record low interest rates are a temporary thing. Contact us in the sidebar today if you would like to look into a refinance yourself.

In some cases when a borrower can’t get a loan modification they can apply for a deed-for-lease program instead. In such programs, rather than face a traditional foreclosure the borrower turns home over to the bank and in return is allowed to remain in the home as a renter. Here are some details on the program from the Fannie Mae site:

What is Deed-for-Lease?

The Deed-For-Lease™ option is a program from Fannie Mae that allows you to lease your home after you have transferred the title to your property to the mortgage company (commonly called a Deed-in-Lieu of Foreclosure). The lease terms are up to 12 months (with the possibility to extend longer). And the monthly rent is based on the current rental rates for your area—not on your original mortgage payment.

Deed-for-Lease is an alternative to foreclosure and may be an option if:

* You are ineligible to refinance or modify your mortgage
* You are facing a long-term hardship
* You are several months behind on your mortgage payments
* You may owe more on your home than it’s worth
* You have not been able to sell your home
* You want to remain in your home and neighborhood

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Important! If your loan is not owned by Fannie Mae, there may be a similar leasing option offered by your mortgage company. Always contact them to see what is available.