Mr. Mortgage @ Mason McDuffie Mortgage » Mortgage Programs

HARP 2 | FAQ

Mr. Mortgage — Thu, 08 Mar 2012 18:27:28 +0000

The Obama Administration is launching a revised version of HARP to expand the borrower which will qualify essentially helping many more people refinance who otherwise wouldn’t have under the original program. Below is a list of FAQ’s.

What is HARP?
The Obama administration in 2009 rolled out HARP to refinance borrowers whose loans were backed by Fannie Mae and Freddie Mac and who were current on their payments. The idea was simple: If you were making your payments on time but didn’t have enough equity to refinance, you would be able to lower your rate without having to pay down your mortgage balance or take out mortgage insurance.

Initially, the program was limited to borrowers who owed between 80% and 105% the value of their homes. In mid 2009, the program was opened to borrowers who owed up to 125% the value of their homes.

But a series of unforeseen “frictions” have led fewer borrowers to take up on the offer of lower rates. Fewer than 900,000 homeowners have refinanced under HARP over the past 2½ years, and just 72,000 of those borrowers have loan-to-value ratios between 105% and 125%.

How is HARP being expanded?
Borrowers will soon be able to refinance no matter how far underwater they are. This should have a big impact in certain parts of Nevada, Arizona, and Florida where many borrowers owe more than 125% of the value of their homes. In Nevada, for example, two thirds of all loans backed by Fannie Mae are underwater, and half of all loans are above the 125% loan-to-value cut-off.

Will I be able to refinance through HARP if I’ve already used the program once?
No. The program will continue to be limited to loans that were delivered to Fannie and Freddie before June 2009, which means that anyone who has already refinanced under HARP won’t be able to refinance again.

What other changes are being made to improve HARP?
One of the most important changes addresses the risk that banks will have to “buy back” defaulted mortgages from Fannie and Freddie if the loans are discovered to run afoul of underwriting rules. This has prompted banks to scrutinize appraisals and require extensive documentation of borrowers’ incomes on loans for which they don’t already collect payments, even if Fannie and Freddie already guarantee those loans. As a result, some borrowers can only qualify for HARP by going to their current mortgage servicer, rather than shopping around for the best rate. Some lenders have been just “cherry picking the easiest loans,” says Keane Ng, a mortgage broker in Kirkland, Wash.

Under changes to be announced on Monday, banks will be largely shielded from the “buy back” risk on HARP mortgages, and they’ll only have to verify that borrowers meet a more tailored set of eligibility rules: that they’ve made their last six payments and have no more than one missed payment in the last year and that they have a job or another source of regular income. Those changes are a pre-requisite for “any game-changing refinance activity,” says Mahesh Swaminathan, senior mortgage strategist at Credit Suisse.

How will this change help borrowers?
This will streamline the refinance process, eliminating the need in many cases for borrowers to obtain appraisals or to provide extensive income documentation. Instead, borrowers will have to show that they’re current on their mortgage, that they have a job or another source of regular income, and that they meet the other eligibility criteria for HARP.

What if I have mortgage insurance?
Mortgage insurers have also agreed to make it much easier to transfer existing mortgage insurance coverage, which has blocked many borrowers from refinancing.

What if I have a second mortgage?
Borrowers with a second mortgage, such as a home-equity loan, need the mortgage owner to agree to “re-subordinate” the loan before refinancing the first mortgage. Federal officials say the largest lenders have agreed to automatically re-subordinate all second mortgages under HARP.

What else is being done to lower costs?
Another change involves fees that Fannie and Freddie charge banks for riskier borrowers. The firms, and their regulator, the Federal Housing Finance Agency, have agreed to waive those fees for borrowers who refinance into loans with a shorter term, such as a 15-year mortgage. They’ll also reduce the fees, but not eliminate them entirely, for everyone else.

When will these changes take effect?
March 18th.

How do I find out if Fannie and Freddie own my mortgage?
You can look that up online for Fannie Mae and Freddie Mac.

Fannie MAE: http://www.fanniemae.com/loanlookup/

FreddieMAC: https://ww3.freddiemac.com/corporate/

What if Fannie or Freddie don’t own my loan—can I refinance through this program?
No. That’s a major limitation, of course, because “jumbo” mortgages aren’t held by Fannie and Freddie, and many of the most underwater subprime mortgages are in privately held mortgage securities that weren’t issued by Fannie and Freddie.

How many mortgages could be refinanced as a result of the changes?
The Federal Housing Finance Agency estimates that another 800,000 to 1 million borrowers could refinance through HARP as a result.

NEW PROGRAM! Homeownership Accelerator

Mr. Mortgage — Fri, 19 Nov 2010 22:06:47 +0000

How do you actually qualify for a mortgage?

Mr. Mortgage — Tue, 09 Nov 2010 21:57:54 +0000

The Hangover

Let’s look at a drinker. Not a raving alcoholic that gets drunk regularly, rather our drinker – we’ll call him Jim – will control his consumption most of the time. However every once in a while Jim will let the moment get the best of his judgement, and he’ll get smashed. When I was in college we called it FUBAR. Well, Jim had a bad binge and is terribly hung over. He has the kind of headache that makes you think if you could just drill a hole in your forehead, you could relieve the pressure inside. His entire body aches and he wishes he had listened to his girlfriend and gone home early. He swears he will never, NEVER EVER get drunk again. Hopefully he’s learned his lesson. Eventually he will loosen up and have a few drinks at a party, but for now he has sworn-off the sauce.

Jim’s attitude towards alcohol is not unlike a mortgage lender’s toward home loans. The lending binge of the housing boom led to our recession/hangover. There’s a party happening in the form of low interest rates. Mortgage lenders are attending the party, but they are very careful not to indulge too much.

A week doesn’t go by that I hear a news story about interest rates being at historic levels, “BUT, good luck finding a bank that will lend to you,” the reporter says. Mortgage lenders are much more discriminating than they use to be in who and how they lend money for home loans. Qualifying for a home loan is more difficult, but it’s not impossible.

There are three areas that a mortgage lender considers when determining whether to approve a home loan application. We call them the Three C’s: Capacity, Character, and Collateral. Capacity is the borrower’s ability to repay the loan. Character is the borrower’s willingness to repay the loan (based on credit history). And Collateral is the asset used to secure the loan, the home.

Capacity

As a borrower, be prepared to prove your capacity to pay back the loan. Provide recent copies of paystubs, and W-2 forms for the past two years to prove you have enough income to repay the loan as well as your current debt obligations. Self-employed borrowers will need to provide two years of individual and company tax returns.

Another component of Capacity is the amount of borrower’s assets. Two months of bank and investment account statements will satisfy the documentation requirement. Be prepared to provide a documentation paper-trail for any unusually large deposits.

Character

Since a mortgage underwriter that makes a lending decision will never get to know or even meet the applicant, they judge the borrower’s character by what they see on a credit report. Whether the borrower has defaulted or made late payments in the past will help the underwriter determine the borrower’s willingness to repay the loan. Severe delinquent events on the credit report such as a bankruptcy, foreclosure, or short sale tells the lender that the borrower has walked away from obligations in the past. This will keep the borrower from obtaining a new home loan for several years.

Collateral

The asset that secures a mortgage is the borrower’s home. The lender will obtain an appraisal report to make sure the current market value of the property is sufficient to secure a home loan. Many borrowers have had difficulty refinancing because they purchased the home at the peak of the market and now the value of their home is insufficient. But those that had large down payments or bought their homes prior to the run-up in the housing market likely have the equity necessary to refinance.

If a potential borrower can provide the documentation necessary to prove their Capacity, have the credit history that shows good Character, and are purchasing or refinancing a home that is sufficient Collateral, then they can qualify for a home loan. Contrary to some negative news reports, people are doing it every day.