Posts Tagged ‘2nd mortgage’

125% LTV Refinance Program Available

March 10, 2010

The Making Home Affordable Program created a program allowing borrowers to refinance even when the value of their home has decreased in value.  The allowable loan-to-value ratio for the program is 125% LTV, but up until now, most lenders were only offering the product up to 105% loan-to-value. 

Good news!! (drum roll) . . . . We can offer this program up to the full allowable loan-to-value of 125%. 

So how do you find out if YOU might qualify?

Question # 1 — Do you pay Private Mortgage Insurance (PMI)?

If you pay PMI on your current mortgage, while the program “allows” for your mortgage insurance company to adjust your insurance to accommodate for the new program (and the 125% LTV), in reality, mortgage insurers (or PMI companies) are not cooperating with the program.  So, if you pay PMI, unfortunately, I can’t help you.

If you do NOT pay Private Mortgage Insurance (PMI) . . .

Question # 2 — Do you have a 2nd mortgage?

If you have a 2nd mortgage, you can qualify for the program, but you can NOT pay off the 2nd mortgage as part of the new refinance.  The only option would be to have the 2nd mortgage subordinate to the new mortgage.  And, if you are already in a negative equity situation (and needing the 125% LTV guide of the program), there is a good chance that the 2nd mortgage company will not approve your subordination request.  For more information on 2nd mortgage subordinations and why 2nd mortgages can be a refinance road-block, read my post here.

If you do NOT pay PMI and you do NOT have a 2nd mortgage . . .

Question # 3 — If your loan currently owned by Fannie Mae or Freddie Mac?

To check to see if your loan is owned by Fannie Mae, you can use their loan lookup tool online.  NOTE:  when you hit “get results” the top of the screen will appear as if the form has not been submitted; you need to scroll down to see the results of the search.

To check to see if your loan is owned by Freddie Mac, you can use their loan lookup tool online.

If you do NOT pay PMI, and you do NOT have a 2nd mortgage, and if your loan IS owned by either Fannie Mae or Freddie Mac . . .

You are eligible and I can help.

Call me and let’s talk through the details, options, your qualifications, etc.  Hope to hear from you soon!  Soon, as in, before mortgage rates go up April 1st (my professional “guess” is that interest rates will be at 5.625% on April 1st, 2010 . . . I know that will be April fool’s Day, but 5.625% and rising interest rates is nothing to joke about).

Your 2nd Mortgage Lender Doesn’t Hate You.

March 9, 2010

A lot of my clients have been calling lately about their 2nd mortgages and home equity lines of credit.  Lenders have been freezing credit lines and reducing high credit limits, decreasing the available credit to homeowners and making a lot of people quite upset in the process. 

Just to clear up a common misconception, a home equity line of credit IS a second mortgage, a type of second mortgage.  A handful of years ago, lenders realized that the term “2nd mortgage” was much less appealing than “line of credit” so the marketing term for a revolving credit line that is lien’d against a property in 2nd position (the house serves as collateral for the repayment of the debt), is just that, a mortgage in second position (2nd mortgage).  This is important in understanding and explaining, why in fact, your second mortgage lender does not hate you.

First, let’s talk about lowering credit limits.  Are lenders allowed to do this?  And, if they are allowed to lower credit limits, why are they lowering credit line amounts?

First — is the lender allowed to lower the high credit limit on your second mortgage?  Yes, probably.  You will need to read through your closing paperwork to find your “Home Equity Line Agreement” or “Line of Credit Agreement” (or something similar) and look for a heading titled Suspension or Reduction of Credit Line.  Under that section, you will likely see something similar to the following language:

Suspension or Reduction of Credit Line.  Bank can refuse to make additional extensions of credit or reduce your Line if you breach a material obligation of this Agreement in that:  The value of your Dwelling securing your Line declines significantly below its present appraised value for purposes of the Credit line.”

The phrase “declines significantly below it’s present appraised value” is up for interpretation, but, in a nervous mortgage market and a declining value real estate market, any decline in value means big risk for the 2nd mortgage lender.  Here is an example:  Let’s assume you did an 80-15-5 to purchase your home for $300,000.  Your loan amounts were for 80% = $240,000 and for 15% = $45,000 and put down 5%.  Similarly, you could assume that you did a 95% LTV (loan to value ratio) 2nd mortgage at some point after closing for home improvements, emergency cash reserve, etc.  If your 2nd mortgage was a line of credit, the outstanding balance is probably about the same, around $45,000 (most credit lines have monthly payments of interest only).   If you home has decreased in value by 10% (the Atlanta market data from 2009 shows deceases in home values in the range of 8 to 20%), your home is now valued at only $270,000.  After 3 years, you have paid down your first mortgage to $230,600 . .  so the 1st mortgage and the 2nd mortgage total $230,600 + $45,000 = $275,600 — BUT, is only worth $270,000.  If your loan goes in to default and the property to foreclosure, the 2nd mortgage company is SURE to lose money — and probably quite a lot.

So that leads us to the second question (although I think I may have already answered it): why are second mortgage lenders lowering and freezing credit lines?  Why?  Because they don’t want to lose money.  And, by “lose money” I mean, “they don’t want to lose MORE money than what they are already losing on all of the foreclosed, short-sale and distressed sale properties.”  They don’t want to lend more money than what can be expected to be recouped in the case of default.  It’s business . . . not personal.   

It’s not that they don’t like you, in fact, as you continue to make your monthly payments (assuming that you are), they like you more and more as each month passes. 

It’s not you . . .

It’s that they don’t like your collateral (the value of your house), at least not as much as they used to (based on original appraisal).