In my recent post about the hidden cost of the payroll tax reduction extension, I alluded to the fact that some homeowners are experiencing problems trying to qualify for this program. In order to qualify for an FHA streamline refinance, in general, homeowners must:

• have an FHA loan and be current on the payments
• have no late payments in last 12 months
• the new mortgage payment must be reduced by at least 5%. This 5% requirement includes both the principal and interest payment combined with the monthly mortgage insurance payment.

Over the past several months, I’ve had conversations with homeowners looking to do a streamline refinance but not qualify because of the 5% reduction requirement. Why is this the case when interest rates are at historic lows? Great question. It all comes down to the monthly mortgage insurance payment.

In 2011, the monthly mortgage insurance premium was increased from 0.55% of the loan amount to 1.15% of the loan amount. Look at those numbers closely… the monthly mortgage insurance payment more than doubled with this change on FHA loans.

While historically low interest rates are lowering the monthly mortgage payment, homeowners who bought their home prior to the monthly mortgage insurance payment more than doubling are having their potential savings ruined by this increase. For example…

I recently spoke with a homeowner wanting to use the streamline refinance program. With interest rates in the 3′s, I was able to save him $135 per month. However, his monthly mortgage insurance payment would increase by $100 per month.

In order to qualify for the streamline refinance, his combined payment needed to decrease by $60. With the increase in the monthly mortgage insurance, the net savings would only be $35. This means he would not qualify for a streamline refinance unless he paid down his mortgage by several thousand dollars.

This homeowner can still refinance, but would have to refinance without being able to use the FHA streamline program. With the new 10 basis points being added to the monthly mortgage insurance (increasing it from 1.15% to 1.25%), even more homeowners may no longer qualify for an FHA streamline refinance.

If you currently have an FHA loan and are considering refinancing, now is the time! If your home is in the state of Georgia, I can help you get started with the process. Contact me to get started.

I’m sure everyone at some point read or heard about the debate over whether or not to extend the payroll tax reduction. It was yet another point of contention in D.C. (isn’t everything these days?… I digress…). In late December, the government came to an agreement to extend the payroll tax reduction. This keeps some extra money in the pockets of every working American and is a help for small business owners too.

Whether or not you agree with the decision, the interesting thing this time was HOW the lost money from the reduction will be covered. The money has to come from somewhere. In this case, the money to compensate for the reduction in payroll tax is being covered through new mortgages.

That’s right… people looking to buy homes OR current home owners looking to refinance will foot the bill. Here’s how:

• The government proposed to pay for the estimated $33 billion cost caused by the reduction through new mortgages. This will affect both conventional and FHA loans.
• For conventional loans (Fannie Mae/Freddie Mac), the new mandatory loan fees will be worked into the interest rates. Look for interest rates to rise by 0.125% to cover these mandatory fees until the $33 billion is covered. While this isn’t the end of the world, it will still cause rates to rise.
• For FHA loans, the monthly mortgage insurance premium is going up (again) by another 10 basis points. This is the 5th increase to the monthly mortgage insurance premium on FHA loans in the last 5 years!

How is this going to impact those looking for a new mortgage? If buying a home, it is what it is. Someone looking to buy can’t control interest rates, and can’t really do anything until they are ready to buy. I wouldn’t rush out the door and buy the first home just because of this.

The more interesting impact will be those current home owners looking to refinance. With mortgage rates for conventional and FHA loans currently in the 3′s, homeowners who are still hoping to squeeze out another 0.125% before beginning the refinance process need to think about moving forward now. We are already at historic lows. Once this extra 0.125% kicks in, it will make it tougher to improve on where rates stand as of this posting.

Also, homeowners with FHA loans thinking about doing a streamline refinance need to get started now. In order to qualify for an FHA streamline refinance, the new mortgage payment + the monthly mortgage insurance payment must be 5% less than what they are currently paying. For homeowners who bought their home with an FHA loan prior to the monthly mortgage insurance premium doubling in 2010 are already having a tough time in some cases qualifying for the streamline refinance. When you add another 10 basis points to the monthly mortgage insurance premium on FHA loans, thousands of FHA mortgages will be ineligible for a streamline refinance with rates at their current levels.

Thinking about refinancing? Now is the time to start. If you are in the state of Georgia, I can help get the ball rolling. Contact me and we’ll take it from there!

Happy Holidays!

Wishing you a happy and safe holiday season. See you in 2012!

When HARP first rolled out a couple of years ago, homeowners with private mortgage insurance would not qualify for the program. Some changes were made along the way that allowed private mortgage insurance (known as “PMI”) to be transferred to the new loan originated through HARP.

But not all PMI loans are created equal. What about homeowners who went with Lender Paid Mortgage Insurance instead of a borrower (monthly) paid PMI?

It actually depends on the company providing the mortgage insurance coverage. Some mortgage insurance companies are reviewing files and considering transferring the coverage to the new HARP loan. Other mortgage insurance companies are not transferring their mortgage insurance policies at all regardless of the type (borrower paid versus lender paid).

It is helpful to know who provides your mortgage insurance. You can find this out by looking in a couple of places. First, try your monthly mortgage statement. If nothing is mentioned there, try your HUD-1 (settlement statement) you got at closing. Last resort, pull out that LARGE stack of papers the attorney gave you from closing. One of the documents you signed would have been a mortgage insurance disclosure. That may also tell you who is providing your private mortgage insurance.

Again, there is no guarantee the mortgage insurance can be transferred. Knowing who is providing the coverage would allow me to see if any of the lenders I work with would be able to get the PMI transferred to your new HARP loan. Regardless if it is borrower or lender paid mortgage insurance, there may be a source.

UPDATE as of 12/20/2011 – Over the past week, several of the lenders I work with have said they cannot refinance a loan using HARP if it has LPMI. For now, it seems that if your loan has monthly paid PMI, we can look to transfer it to the new loan. If it has LPMI, the potential refinance using HARP is on hold.

Do I have your attention?… Good! The highly anticipated release and implementation of HARP 2 has arrived. For background on HARP (the Homes Affordable Refinance Program), check out my previous posts. There is a detailed “question and answer” style post here. Also, this post details the changes now allowed by Fannie Mae and Freddie Mac.

Some of my lenders have (finally!) released their guidelines and are accepting loan applications for the revamped HARP. While the guidelines individual lenders use can vary from Fannie Mae or Freddie Mac guidelines, from what I’ve seen so far, they seem to mirror one another.

Here are some specific details for using the updated HARP program:

• allows up to 125% loan to value (LTV) for owners primary residence and second homes (was 105%). The unlimited LTV program will not start until 2012.
• investment properties can be refinanced up to 90% LTV (was 80%). To use HARP on an investment property, the property must have originally been purchased as an investment property (not converted from a primary residence to an investment property).
• debt to income ratio can be as high as 55% (was 45%)
• unlimited total loan to value for homes with second mortgages. That said, the second mortgage company must subordinate their loan behind the new first mortgage to qualify
• The “old” rules of requiring Fannie/Freddie to own your loan, you got the mortgage prior to early 2009, and being current on the payment still apply in order to qualify.

These are exciting developments that homeowners can now use and refinance into much lower interest rates. If the property is in Georgia, and you think you might qualify to use HARP, contact me and we’ll find out!

As a follow up to my post last week, what does residential real estate do next?

Although we still have a lot of challenges ahead of us, the latest information supports last week’s blog. The residential real estate market is starting to recover. The chart below clearly shows we have peaked in the 4 major categories when tracking defaults and late payments on mortgages.

As supply of foreclosures continues to decrease, the inventory level will continue to fall. A strong buying season next spring and summer could spring board us to a manageable inventory levels and move us toward the price appreciation phase of the recovery.

The biggest challenge that still exists is the fact that one in four homeowners with a mortgage owe more than their homes are worth. We have a solution to this with HARP 2 – the updated program from Fannie Mae and Freddie Mac.

If this program is successful, many of these homes will qualify for a refinance. This would reduce monthly mortgage payments by as much as $75-$300 per month. This translates to more disposable income for millions of homeowners that can begin to filter into economy. This will only help spur the economy forward and will aid in its recovery. Stay tuned for the next follow up.

• “one of the most anticipated sequels of 2011″ – says Clay Jeffreys of The Mortgage Blog
• “it’s about time” – says a frustrated homeowner

Unlike some movie sequels that get filmed (really, we needed a Spy Kids 4?!?), the Homes Affordable Refinance Program, known as HARP, needed a sequel. Why? Just like Rebook realized they needed to make more “office linebacker” commercials after its popularity from a past Superbowl, HARP needed some revisions to be more readily available to homeowners so more people can enjoy it!

Reebok knew what they were doing!

The original intent of HARP was to allow borrowers who were somewhat underwater refinance their mortgage into a lower rate. On paper, it sounded great. Sadly, unforeseen issues arose that didn’t allow the program to be as effective as the government hoped it would be.

What changes should one expect with the sequel “HARP 2 – The Mulligan”? There are a few major changes, but good portions of the HARP program remain the same. You can read about the program from my recent posts here (a recent “question and answer” session) and here (an overview when the program was first announced). Changes include:

• No maximum loan to value limit. Once this part begins (to start in 2012), homeowners can be 200 or 300% underwater and still refinance to a loan without paying mortgage insurance if there is not mortgage insurance on the current loan.
• Up to 125% loan to value ratio to be allowed with any mortgage company. This should get underway starting in December. Presently only your current mortgage servicer was allowed to go that high, which limited consumer’s ability to shop for the best interest rate.
• Homeowners can qualify even if they are currently unemployed AND no income verification is required if the previous loan was a stated income loan as long as…
• Homeowners have no late mortgage payments in the last 6 months, and only one late mortgage payment of 30 days in the last 7-12 months. In other words, if you are paying on time, you could refinance without income verification.
• Private Mortgage Insurance (PMI) to be transferred to the new loan as long as it is not Lender-Paid PMI

As long as Fannie Mae or Freddie Mac own your mortgage, you got the mortgage prior to the end of February 2009, and you are current with the payments, there is a good chance you’ll qualify for new and improved HARP 2 loan program.

Some questions you may be thinking:

• How do I know if Fannie Mae or Freddie Mac own my mortgage? Great question! You can use their online lookup tools. Use this link for Fannie Mae. Try this link for Freddie Mac.
• How do I get started? If the property (primary residence, vacation home or investment property) is in the state of Georgia, I can help you get started. Contact me and we will take it from there.

Remember HARP 2 is not here yet, but it is coming soon. Refinance applications for the updated program can start in December, but some parts may not be available until 2012. Stay tuned to The Mortgage Blog for updates on all aspects HARP 2 availability in the coming weeks!

I think we are all tired of hearing about residential real estate market and the drop in value of our homes. As many us feel no turnaround is in sight, what do we do next?

Nothing and focus on the future. Why?

Unless you are in a position where you must sell your home, you are only sitting on a paper loss. If you are planning on being in your home for many years to come, you will most likely return to profitability on your home over time.

As bad the real estate market seems, if you do not yet own a home, you should jump in soon. Homes are at an unbelievable value right now with the combination of historically low mortgage rates and the current value of homes. Anyone could look like a Donald Trump three years from now in this market (well, maybe not the hair part).

For those of us (like myself) who have lost significant equity in our homes, the end is closer than you think. Mortgages going 90 days late (or more) have dramatically slowed down. Thus, the future supply of the foreclosure pipeline is also going to slow down.

We all hear about the shadow inventory. These are homes that people have defaulted on their mortgage, but banks have yet to put those homes on the market or completed the foreclosure process. Banks will begin pushing this inventory into the market starting toward the end of this year and the beginning of next. It will take 6-9 months to get the remaining inventory sold. In theory, some markets may wind up with a housing shortage toward the end of 2012.

Once the shadow inventory is gone, combined with the reduced amount of new homes being built, we will have created the perfect storm for an escalation in home values. The suppression in home values won’t last forever. So look to the future, it will be bright and the housing nightmare will be gone.

We keep hearing and reading about Greece influencing the world economy. Any why not? Greece had a profound impact on the history of the world with its contributions to theater, math, science, architecture, art, democracy, literature, and war.

For example, who can forget Homer’s Odyssey? This story was the basis of the cult movie hit O Brother Where Art Thou?… What about superior weapons (bronze shields) and the military strategy (the phalanx) that allowed the Greeks to conquer most of the known world.

A rare photo documenting how average male Greeks looked in ancient times.

Yes, Greek influence can be seen in our modern day governments and culture. We are also experiencing some economic turmoil from Greece as well. The question I keep getting asked is how does Greece impact interest rates?

As strange as it may sound, the turmoil taking place in Greece is impacting not only our economy, but stocks and interest rates as well. Here is a quick summary of how this takes place.

• While Greece may be staving off defaulting on their sovereign debt, the threat of a default is causing the world markets to panic. This is hurting stocks around the world, slowing trade, and hurting the Euro.
• When stocks suffer, investors typically pull money out of stocks (better return but more risk) and put them into all types of bonds (lower return but safer investment). As certain bond prices rise, interest rates go down.
• With the Euro in threat of collapse (extreme but possible), the US Dollar has become the safe-haven currency of the world. Even though the US economy is struggling, the Dollar is a safer bet right now than the Euro. As foreign investors and governments buy our bonds, their values rise, and interest rates go down.

As you can see, the turmoil in Greece is impacting much more than just one country and one currency. Their financial difficulties helped push rates down to new historic lows (set in early October), and interest rates are not that far off from those levels. That means interest rates are really, really low.

If you haven’t talked to anyone about refinancing a mortgage OR still sitting on the fence waiting for rates to get better before you buy a home, don’t sit around forever. Rates can change. Last November, rates were about where they are today. By mid December 2010, rates were in the low 5′s.

The moral of the story? Take a few minutes to talk to someone in the mortgage industry that can offer advice and steps on how to proceed to either buying or refinancing a home. That way you’ll know if it is a good time or not to consider moving forward. If the property is in the state of Georgia, I’d be glad to help you sort through the options. All it takes is a call or email to get going.

The government announced changes to the HARP program this morning (October 24, 2011). I know there will be lots of questions about the program and the changes, so let’s try a “Q and A” approach to this post!

* I’ve offset the updated portions of HARP with bold colored text. *

Q: What is HARP?

A: HARP is the Home Affordable Refinance Program, but like characters from the Lord of the Rings, it has many different names including Making Homes Affordable, DU Refi Plus, Freddie Relief, and some even refer to it as the Obama Refi Plan.

Like HARP, Gandalf has many names including Gandalf the Grey, Gandalf the White, The White Rider, Greyhame, Mithrandir, Stormcrow, The Grey Pilgrim, Tharkun, Olorin, Láthspell... you get the idea.

Q: Does anyone qualify for HARP?

A: No. There are two main items that each current homeowner must meet to qualify. First, either Fannie Mae or Freddie Mac must own your mortgage. Second, Fannie or Freddie must have received your loan prior to June 1, 2009.

Q: How do I know if Fannie Mae or Freddie Mac own my loan?

A: Great question! It is nice that Fannie Mae and Freddie Mac have both created a look-up tool to make it easier to find out if they own your mortgage. To use Fannie Mae’s, use this link. For Freddie Mac, go here.

Q: Are there any other criteria to meet in order to qualify:

A: Yes, there are other items that potential borrowers must meet. These include being current on your mortgage payments, no late payments in the last 12 months, a qualifying credit score, and borrowers still must qualify based on their income.

Q: NEW – Are there loan to value limits?

A: No, there are now no loan to value limits to qualify. You can be 200% underwater on your mortgage and still qualify to use HARP. This was previously a major holdup to homeowners qualifying to use this program, and it has now been eliminated.

Q: If I have less than 20% equity in my home, will I have to pay PMI on the new loan?

A: No, you will not have to pay PMI on the new loan regardless of the loan to value/amount of equity in your home.

Q: I pay PMI now, can I qualify for the HARP program.

A: Your PMI payments on the new loan will not go up, but the transfer of your PMI from your current loan to the new loan will require some extra steps. Let your loan officer know if you have PMI on your current loan.

Q: I have a second mortgage on my home. Can I still qualify? Would I have to consolidate into one mortgage?

A: Yes, you can still qualify for HARP, but not by consolidating the mortgages. HARP does not allow homeowners to consolidate loans. The second mortgage company must agree to subordinate behind the new first mortgage. The revamped HARP may allow auto-subordinations to occur, which will make it easier for homeowners to use HARP if they have a second mortgage.

Q: Can I refinance any property?

A: Yes, you can. Primary residence, second homes, and investment properties can all qualify for HARP.

Q: NEW – Can I use HARP with any lender?

A: Yes, you can use any lender to refinance your mortgage. Prior to the loan to value changes from 125% to no limit, homeowners were required to use their current loan servicer to go up to 125%. That is no longer the case.

Q: When will these changes go into effect?

A: Lenders should begin coming out with updated guidelines in the next few weeks. Homeowners can more than likely begin using the revamped HARP in December 2011. The HARP is currently extended to go through the end of 2013, so there is plenty of time to take advantage of it!

Q: I have more questions, and would like to get started. What do I do?

A: If the property is in the state of Georgia, I can help get you started with the refinance process. Contact me and we’ll get underway with the process and answering any additional questions you have about HARP. If the property is not in the state of Georgia, contact a local loan officer/lender to get started.

Like the Lord of the Rings, the HARP has a lot of names and details that go with it. Unlike the Lord of the Rings, it won’t be an grand, epic, and sometimes exhausting 1,000+ page read cover to cover… but both come with a happy ending!