About Government Refinance and Home Purchase Programs

As we noted earlier, the Fed announcement last week pushed mortgage interest rates to shocking lows. Rates have drifted up again this week a but but it is still a great time to refinance. Here is a great quote from Housing Wire on the subject:

A separate rates survey conducted by Bankrate.com found that mortgage rates this week actually hit their lowest point since the Eisenhower era — yes, the 1950s! According to Bankrate, the benchmark 30-year fixed-rate fell 10 basis points to 5.19 percent, while the benchmark 15-year fixed-rate fell 6 basis points to 4.8 percent.

The plunge in housing prices has not slowed quite yet. Recent numbers show that prices on average in the US in January ’09 were down 6.3% when compared to Jan ’08. See the story here.

Once again — if you have a mortgage in the 6’s or above and still have equity in your home, now would be a good time to look into refinancing. You can contact us in the form in the sidebar.

President Obama is rumored to be on the verge of announcing his nominee to be the new chief for the Federal Housing Administration. See the Bloomberg article on the subject here. It will be interesting to see if the new leader does anything to help re-ignite the housing market even further.

Here is a bit from the article:

David Stevens, president and chief operating officer of real estate brokerage Long & Foster Cos., is President Barack Obama’s choice to head the Federal Housing Administration, according to people familiar with the selection.

See the AP article on the Fed announcement here. We’ll see where rates go from here. They are already hovering in the low 5’s right now.

The reason that mortgage interest rates have been hovering at historic lows in the last couple of months (in the low 5’s) is that the Federal Reserve has been feverishly buying up mortgage backed securities (MBS). A MBS is basically a bundle of mortgages that banks put together and sell as investments. Banks sell mortgages because that gives them more money to lend to others. The easier it is to sell these MBS’s the lower rates can go. So with Uncle Sam willing to gobble up the MBS’s for sale rates stay low.

According to this article, the Fed is committed to keep at it as long as it takes to help turn around the economy. That is a good thing if you need a refinance.

It used to be that qualifies borrowers could refinance into an FHA loan and get cash out up to 95% of the appraised value of the home. Those days are soon to be gone. HUD just announced that beginning April 1 cash out refinances through the FHA have an 85% loan to value maximum.

FHA had already been moving in this direction. Recently they started requiring a second appraisal for cash out refinances between 85% and 95% of the appraised value of the home. The latest change is almost certainly a way to protect the FHA funds from drying up in this environment where home values across the US are predicted to drop another 20-30% in 2009.

We have been noting the risks of ever dropping housing prices. A post over at Housing Wire reported yesterday that national housing prices dropped a full 3.5% in January alone.

Once again we remind you — if you are in an undesirable loan and still have equity in your home contact us today about refinancing into a government-backed mortgage before it becomes too late.

There was an interesting column published over at Bloomberg recently. It wisely recommends that people lock their loans now while they are still in the 5.5% and less range. It also points out that lending standards remain quite tight and there are always fees associated with refinances. Here are some excerpts:

So who is actually getting some?

I mean those beautiful fixed-rate mortgages advertised at 5.5 percent or less. Maybe, in a virtual world, an avatar can drop into a virtual bank and close a loan at that rate, but here in real life, achieving it is close to a miracle.

…

It’s taking longer to close a loan. Lenders, burned by their own sloppy practices, have gone back to checking what you say on the application and that takes time. For example, they are routinely checking your income claims against your tax return, says Jim Pair, president-elect of the National Association of Mortgage Brokers.

Once you strike a deal on a mortgage, protect yourself by locking up the interest rate for the length of time it will probably take for the loan to close. Rates can change as much as a quarter-point in a single day.

This article is overly pessimistic but it is good to remember that even government-backed loans are becoming harder to qualify for and that there are always fees involved.

One of the more surprising revelations from last week about the Obama Fannie/Freddie program is that it does not apply exclusively to primary residences. Rather, it applies to any home that is backed or insured by Fannie or Freddie.

Of course to take advantage of one of the new Home Affordable Refinance loans a borrower needs to be a rare breed:

– Credit scores above 680
– Plenty of income to easily afford the mortgage payments
– No second mortgage on the home (lest you incur a huge penalty)
– At least break even on the equity

I’m not sure where the administration is getting the 3-4 million homeowner number who will reportedly benefit from this refi portion the new plan, but with those kinds of restrictions it is hard to believe anywhere near that many homeowners will fit the mold.

Perhaps they are counting on the loan modification portion helping most of the people instead…

This bit from a recent AP article caught our attention:

HOW MUCH WORSE COULD IT GET?: The Federal Reserve estimates home prices could fall 18 to 29 percent more by the end of 2010.

This is a big deal. The more home values drop the more people who will become upside-down / underwater on their homes. When your home is worth less than you owe on your first mortgage you can’t refinance no matter how good your credit and income is unless you currently have an FHA or VA loan. If you owe more than your first and second mortgages combined but your home is worth more than your first mortgage still you may be able to refinance the first mortgage and subordinate the second mortgage but doing so can be difficult.

If you still have equity in your home and need cash out to pay off other debts or need to refinance to get out of an undesirable loan contact us in the sidebar. The longer you wait in the 2010 the lower the value of you home may become.

Fannie Mae and Freddie Mac put out some details for lenders on the new Home Affordable Refinance program. (The full documents can be found here.) As has been announced, the Home Affordable Refinance program is the part of the Obama refinance plan for borrowers who are not in trouble but who, because of home values dropping, have less than 20% equity and thus cannot refinance into the low interest rate loans that are available now. See here for the things that still disqualify borrowers from refinancing. Borrowers who cannot refinance can request a loan modification from their current lender(s).

Here are some interesting tidbits about the new Home Affordable Refinance program:

1. If your middle credit score is below 680-700 the risk-based pricing will likely preclude you from this particular program. The FHA program is still available for borrowers who have credit scores from 620 to 700.

2. If you owe more on your first mortgage than your home is worth this program will probably not work. While the program allows for you to refinance your first for up to 105% of the current value of the home, that extra 5% is mostly there to cover closing costs on the refinance loan.

3. If you have a second mortgage the fees associated with a Home Affordable Refinance may make the program untenable. The program allows you to refinance the first mortgage and keep your second mortgage in place but there are substantial pricing penalties if the amount of your first and second mortgage combined is greater than 95% of the current value of the home. Note: If your first and second add up to more than the value of your home you can still refinance the first mortgage through the FHA program with no penalties as long as the second mortgage holder is willing to subordinate their loan (meaning willing to remain in second lien position).

4. If your mortgage does not have mortgage insurance now your new Home Affordable Refinance loan does not need mortgage insurance either even if your loan to value is greater than 80%. However if you do have mortgage insurance now that insurance is supposed to transfer to the new loan under the program.

5. The program won’t really kick in until April by most accounts. While Fannie and Freddie have announced the guidelines it will take a while for the banks and investors to ramp up and be ready to start funding the new loans.

Please contact us or comment below with any other questions.

The Obama released some of the details of the Making Home Affordable plan today with not many surprises. See the guideline summary pdf here.

The plan is split into two parts; the first is for refinances and the second, larger part, is for loan modifications. The refinance portion is dubbed The Home Affordable Refinance and it is the portion our group focuses on. Here are some of the basic qualification questions for The Home Affordable Refinance program:

1. Is your home your primary residence?
2. Do you have a Fannie Mae or Freddie Mac loan? If you don’t know contact:
* Fannie Mae, 1-800-7FANNIE (8am to 8pm EST). www.fanniemae.com/homeaffordable
* Freddie Mac, 1-800-FREDDIE (8am to 8pm EST). www.freddiemac.com/avoidforeclosure/
3. Are you current on your mortgage payments?
* “Current” means that you haven’t been more than 30-days late on your mortgage payment in the last 12 months.
4. Do you believe that the amount you owe on your first mortgage is about the same or less than the current value of your house?

If you meet those four requirements a Making Home Affordable Refinance may work for you. If that is the case please contact us by filling in the contact form in the sidebar.

If you do not meet the above requirements then the second part of the plan, The Home Affordable Modification, might apply to you. In order to check on a Home Affordable Modification please contact your current lender or servicer directly.