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Federally Sponsored Refinance Options 4-5-10
It has been a while since I wrote about the options available to those who need assistance with refinancing their existing loan, but feel they can’t, due to either income or value issues.
It has been 13 months since the President announced the government’s first effort to help homeowners. Many refer to it as the Obama Plan. It is actually two very different programs. The first helps homeowners with equity issues, while the second attempts to help those with income issues. A third program was announced last week that will try and help those with equity issues through a new FHA loan.
New FHA Refinance Program This program was announced last week by the President. As with the other government programs announced to help homeowners, it sounds great, but most likely will not work. This latest program is again strictly voluntary for lenders to participate in. It will allow those homeowners with 1st and 2nd mortgages to refinance into a new FHA loan. This program is only for owner-occupants. If you are current on your existing mortgages, have decent credit, and sufficient verifiable income, this loan program could work for you. In order for you get a new FHA loan, the government is giving lenders financial incentives to write down a portion of your current mortgages. The new FHA 1st mortgage can not exceed 97.75% of your home’s value. Adding your 2nd mortgage, you can not owe more than 115% of your home’s value. To qualify, the combined payment on your new FHA mortgage and your reduced principal 2nd mortgage can not exceed 31% of your gross income. All other debts can not exceed 50% of your gross income.
Since this program was only announced last week, it is hard to gauge how many home owners will qualify, or how lenders will respond to this program. If it is anything like the modification program reviewed below, it will again be a big waste of time.
Making Home Affordable This is the program for those wishing to refinance to a lower rate, but are unable to due to a large drop in the value of their property. This program is available to all three types of home ownership: Owner Occupants, 2nd Homes, and Investment Properties. The concept is simple. If you have decent credit and have sufficient income to qualify, by lowering your interest rate, you are less of a risk of foreclosure. This program allows those people to refinance their existing mortgage even if the balance is as high as 125% of the value of the home.
The problems most people encounter with this program are if you have a 2nd mortgage or are already paying mortgage insurance. The program does not allow for you to combine your 1st and 2nd mortgages into one new loan. If you fall into this category, you still might be able to refinance the 1st mortgage at a lower rate, but you will still have the 2nd mortgage. A huge sticking point is that the holder of the 2nd mortgage must agree to the refinance. If they say no, you are stuck. For those with one loan, but have mortgage insurance, the program does allow for those currently with MI to be able to transfer that MI certificate from the old loan to the new one. Borrowers trying to refinance these loans are finding that most lenders either will not do it, or do not have the systems in place to do so. 95% of all those with current MI are stuck.
To qualify for this program you must have decent credit, sufficient verifiable income, an existing 1st mortgage that is owned by either Fannie Mae or Freddie Mac, and the existing mortgage can not be one where you originally qualified with “credit enhancements” such as stated income. To obtain one of these loans, call me, as this program does not require the home owner to work with their current mortgage servicer.
Home Affordable Modification Program This program is for those in imminent risk of foreclosure. This voluntary program allows those that are close to losing their home to apply with their existing servicer for a 5 year modification of their current loan to a lower interest rate. The lender is in no way compelled to grant you a modification. There are specific formulas to calculate if you qualify, and to what rate your loan can be lowered to. The government involvement in this program is that they help offset the lenders loss, by compensating them for a portion of their reduced income from your loan. The lender does have the right to tack on any losses not covered by the government to the end of your loan, or even require you to agree to a separate loan for the income they are giving up.
This is the program most scam artists have used to prey upon the desperate. Never pay a company for their services in helping you get a modification. There are several non-profit organizations that will assist you for free.
If you want a modification because you want to lower your rate, yet you have sufficient income and good credit, you will not get one! Here is how the lenders look at your request and deciding if they should grant you a modification. For a moment, look at your situation through the eyes of the lender: “Will we the lender, lose more money by granting a modification, or by going to foreclosure?” If the lender feels that they will lose more income by granting a modification over foreclosure, you will not get one. They will let the property go into foreclosure and take the smaller loss.
When this program was announced in February of 2009, it was touted as the government’s best effort to stop the flood of foreclosures. One year later, thousands of homeowners have been scammed by bogus modification companies who charged as much as $5,000 up front to desperate homeowners. Then there’s the other group of people that had great credit that were advised to stop paying their mortgage to show need. They never got a modification and had their credit ruined in the process
The most sobering statistic released this week by the government is that of all those homeowners trying to use this program to lower their mortgage payment, slightly less than 10% have been successful.
With all the changes in regulations and lender policies, here is a short update on loan programs that are still available. Many think the 30-Year Fixed or a few ARM products are all that are left. Below is a condensed list of loan programs still available. For specific loan scenarios, call Alan for more details, he replies to all requests promptly.
40 / 30 Year Fixed with 10 or 15 Year Interest-Only Periods
ARM Products:
1 / 3 / 5 / 7 / 10 Year Fixed Initial Period Fully Amortized Mortgages
3 / 5 / 7 / 10 Year Fixed Initial Period with 10 Year Interest-Only Period
Options With Little Down Payment
There’s still a large portion of the population that still hasn’t heard that most 100% financing programs are gone. With that in mind, what options are available for those seeking financing with little or nothing down? Let’s first discuss what’s truly gone. There is no financing available for 2nd home purchases or investor properties. For owner-occupied properties, there still are some options.
VA VA loans are by far the best deal out there for those current or former military who meet eligibility for a VA loan. VA loans provide for 100% financing for loans up to $1,000,000. These loans are a great deal because there do not require expensive mortgage insurance. Mortgage insurance is not required because the VA guarantees a portion of the loan for the lender in case of default. The program also allows for the veteran to purchase a new home even if they are planning on keeping their existing owner-occupied property. The VA does charge a fee of 2.15% of the loan amount as fee for their guaranty. Although this seems steep, they do allow this fee to be incorporated into the final loan amount.
USDA Rural Housing This little known program is a great program for those considering a home that is no more than around $400,000. This type of loan is guaranteed by the US Dept. of Agriculture. This is not an agricultural loan. The program allows for 100% financing. Like VA loans, since the lender has a portion of the loan guaranteed by the government, mortgage insurance is not required. USDA–RHS loans have income and geographic restrictions. The property being purchased must also be a single family home, and can not have an in-ground swimming pool. For income,, each island has a maximum amount of income for the entire household, and not just those on the loan. If the combined income of the family is above the limit, this loan will not work for you. The geographic restrictions are quite simple. This is a RURAL housing loan. Large portions of Oahu are considered rural. All of Kauai, Molokai, and Lanai qualify. All of Maui, except for Kahului is acceptable. And on the BigIsland, except for Hilo, the entire island qualifies. The USDA does charge a fee of 2% of the loan amount, but like a VA loan, this too can be made a part of the total loan.
FHA This once obscure program has been the savior for most in the past two years as the 100% financing programs vanished. This program requires a down payment of 3.5%. Of the three options, this programs ranks third in regards to being the best deal. FHA loans have no restrictions for income or where you can buy. You also don’t need to be a veteran to qualify. FHA loans do require mortgage insurance. As with the two other loans above, these loans are guaranteed by the federal government. The FHA charges a fee of 1.75% of the loan amount as their fee for the guaranty. Like VA and USDA-RHS loans, the fee can be incorporated into the loan amount. Because mortgage insurance is required, this could add $100-$300 per month to your payment.
Loan programs are also still available for Condominium Hotel Units (Condotels), VacantLand, Construction-to-Permanent Loans, and Owner Builder Construction Loans.
