About Government Refinance and Home Purchase Programs

In his weekly radio address this week President Obama pointed a finger at the US Congress for ignoring a $5-10 billion plan he proposed last February designed to help more American homeowners who are underwater or upside down on their mortgages. Here is what the president said:

Back in February, I sent Congress a plan to give every responsible homeowner the chance to save about $3,000 a year on their mortgages by refinancing at lower rates. It’s a plan that has the support of independent, nonpartisan economists and leaders across the housing industry. But Republicans in Congress worked to keep it from even getting to a vote. And here we are — seven months later — still waiting on Congress to act. This makes no sense. Last week, mortgage rates were at historic lows. But instead of helping more and more hardworking families take advantage of those rates, Congress was away on break. Instead of worrying about you, they’d already gone home to worry about their campaigns.

The move by the president was largely symbolic and political in nature because there is no chance the congress will look at any such ideas prior to the November elections. Last February the congress rejected the idea because of the large price tag it came with. There is no indication right now that the stance of the GOP led congress would change even if President Obama were re-elected. But of course circumstances in Washington can change quickly as well.

When the FHA announced that they would be increasing their upfront and monthly mortgage insurance fees it was widely assumed that FHA streamlines for FHA loans that were originated after May of 2009 would no longer make sense. But with rates testing all time lows that assumption is proving to be false in many cases.

FHA streamlines for older FHA loans remain a no-brainer
As we have discussed here in the past, for people with FHA loans that were originated and endorsed by the FHA before June of 2009 there are some extremely beneficial new rules which eliminate the upfront mortgage insurance premium along eliminating any increases to the monthly mortgage insurance fees. Streamlining these older FHA loans is normally a cost-free refinance and with rates testing all time lows this summer, getting an FHA streamline for the folks who qualify for this pre-June-09 program is usually an easy decision.

FHA streamlines for newer FHA loans can make sense too
Here is the problem with streamlines of FHA mortgages that were originated after May of 2009. First, there is an up front FHA fee of 1.75% of the loan amount. Second, the monthly mortgage insurance fees more than double. Here is and example of a $200,000 FHA loan:

– Loan amount: $200,000
– 1.75% Upfront FHA mortgage insurance fee rolled into the new loan: $3500
– Monthly mortgage insurance fee: Going from about $90/month to probably closer to $200/month

It is not hard to see why people assumed FHA streamlines of newer FHA loans were dead. The increase in monthly mortgage insurance fees tends to eat into monthly savings on a such a streamline pretty significantly. Using our example loan above, if the existing FHA loan were at 5.25% and the new FHA mortgage were at 3.75% the principal and interest payment would decrease about $200 per month. But the monthly mortgage insurance would increase by $110 per month (as noted above) so the net monthly savings would be about $90 per month. And while $90 per month in savings isn’t bad, if the balance of the loan also were to increase by $3500 it would take a long time — more than three years — to break even on a refinance like that.

So what has changed to make streamlines for newer FHA loans make sense now? The answer is this: In recent months interest rates have improved so much that some authorized lenders are now able to give enough of a lender credit to pay for that entire 1.75% up front fee along with most of the other costs of the FHA streamline on behalf of the borrower. So in the example I gave above the net monthly savings would still be about $90 per month at 3.75% but there would be no costs rolled into the loan at all so the break even on the refinance would be immediate. The long term advantages of reducing such a loan from a rate in the 5’s to a rate in the high 3’s are even more significant. That is in part because after 5 years the monthly FHA mortgage insurance fee could drop off entirely. So after 5 years the payments could decrease by another $200 per month in the example we are using.

Conclusion
If you have and FHA loan that is less that three years old there is still hope for you with the FHA streamline program. This is particularly true if your current rate is in the 5’s or higher.

Contact us in the sidebar to the right to learn more about the FHA streamline program or to get an estimate from an authorized lender. Or if you don’t have an FHA loan now contact us to learn more about the HARP program or other government-backed refinance programs as well.

In the wake of the Federal Reserve’s newly announced quantitative easing program, mortgage interest rates have dropped to all time lows again this month. There has never been a better time to refinance.

Please note that the rates borrowers see in the news apply to mortgages where the borrower has plenty of equity and excellent credit. When there is little or no equity or if there are credit problems interest rates tend to be slightly higher. For instance this week rates on 30 year fixed government-backed mortgages for folks with plenty of equity and good credit were coming in at around 3.5% (or even lower in some cases). But in cases where the home is underwater (where the borrower owes more than the home is worth) and the borrower is using the HARP program the risk is higher for the lenders so the rates tend to be higher. Still even in those cases rates are astonishingly low right now. Most HARP 2.0 loans are still coming in at rates in the very low 4’s or even high 3’s this week.

Rates on FHA streamlines have been low too. For people who have FHA loans that were started in the spring of 2009 or sooner, refinance rates have been down in the mid to low 3’s this week with no closing costs added to the new FHA loan. For newer FHA loans streamline rates have been in the mid to upper 3’s.

Beware of false advertising from lenders. Many lenders will advertise rates in the 2’s but won’t mention in the advertisements that rates that low only apply to 15 year mortgages (which have higher payments) or adjustable rate mortgages (ARM’s). If you are looking for a 30 year fixed refinance, rates are in the mid 3’s and higher.

Contact us in the sidebar to learn which government-backed refinance programs are best for your family and to get an estimate.

The highly anticipated Fed announcement today ended up being good news for borrowers considering refinancing their mortgage or buying a home. The gist of the announcement was that the Fed was going to put a lot more money into compressing interest rates heading into this fall. Here is a quote from the statement:

To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee agreed today to increase policy accommodation by purchasing additional agency mortgage-backed securities at a pace of $40 billion per month. The Committee also will continue through the end of the year its program to extend the average maturity of its holdings of securities as announced in June, and it is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. These actions, which together will increase the Committee’s holdings of longer-term securities by about $85 billion each month through the end of the year, should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.

This is the “QE3” that many pundits suspected was coming and it is more aggressive than many assumed. For consumers, mostly this means that mortgage rates could continue to test new all time lows for the next couple of months.

Contact us in the sidebar to learn more about the various government-backed mortgage refinance programs available and to get an estimate.

A disappointing jobs report was released this morning. Expectations were than the US economy would add about 140,000 jobs in August but the number came in at 96.000. The immediate market reaction to that unpleasant news was a increase in buying of mortgage backed securities and treasury bonds as investors sought safe havens for their money. Upticks in purchases of treasury bonds and mortgage backed securities inevitably lead to mortgage interest rates dropping.

So while indications that the US economy is still faltering is not good news at all, it has at least had the positive effect of keeping downward pressure on mortgage interest rates for now. Of course there is no telling how long this current trend will last so if you are interested in seeing if a government-backed refinance programs can help your family contact us in the form in the sidebar today. With any luck we can help direct you to a program that will make a positive difference for your household.