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Golden Economizer has been brokering residential mortgage loans and real estate in Los Gatos, California since 1993. He has a B.A. in Economics from the University of Virginia. He is an advocate of free markets, sustainable lifestyle, limited federal government and an asset backed currency. He... More
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  • Playing the HARP – How to Benefit from a Federally Subsidized Mortgage Refinance 11 comments
    May 26, 2009 4:34 AM | about stocks: FNMA, FMCC, WFC

     

    Part 1 – The Fannie Mae DU Refi Plus        May 25, 2009

    As a mortgage broker in the state of California I now have access to two new Home Affordable Refinance Programs (HARP), which were recently made available by federal legislation passed in February, the "Helping Families Save Their Homes Act".  This was announced in March, and finally implemented by mortgage lenders in April 2009, as a part of the 2009 Stimulus Act.

    There are two separate programs, one which you may qualify for if Fannie Mae holds your current mortgage, and the other if Freddie Mac holds your mortgage.  I will not do a point by point comparison of the two programs, because your existing mortgage can only be eligible for one or the other, and they are not interchangeable. 

    You may not be eligible for either program if your mortgage is held by a private party, small bank or credit union, and even if your loan is held by Freddie Mac, you may not be eligible depending on whether your loan servicer has chosen to participate in the program.  I have personally seen more than one borrower declined for the program even though their mortgage was held by Freddie Mac and the servicer was participating in the program.  There was no explanation offered by the lender for declining either borrower.

    Having said that, I believe that well over 25% of the mortgages in the USA are eligible for refinancing under the HARP programs, and many homeowners that do not qualify for a conventional refinance will be able to benefit greatly from the refinance opportunity provided by these programs.

    Today I will cover the Fannie Mae DU Refi Plus program, and tomorrow in Part 2, I will cover the Freddie Mac Relief Refinance Program.  Since Fannie Mae holds about three quarters of the conforming mortgages in the USA, far more people may be eligible for the benefits of refinancing under the Fannie Mae DU Refi Plus program, but there are certain unique benefits and advantages of the Freddie Mac Relief Refinance that could save certain lucky borrowers a lot more money than the Fannie Mae program and allow them to qualify more easily.  More on that tomorrow.

    The information presented here is from my own personal experience as a mortgage broker, and the published guidelines from Fannie Mae and Freddie Mac.  Keep in mind that there are no experts on these programs which have been in existence for less than two months, and you should try to use a conscientious mortgage broker who will read the guidelines carefully in advance. We are learning as we go.

    There are many fine points involved in these programs, so be sure to consult an experienced mortgage professional.  Each lender may have their own variations on the general program guidelines.  I can cover the highlights here, but not every detail.

    Most of my direct knowledge of the program guidelines come from Wells Fargo Bank’s (NYSE:WFC) version.

    ______________________...

    Here are the major benefits of the Fannie Mae DU Refi Plus program:

    1.    Refinance from 80% up to 105% LTV, with no limit on CLTV

    2.    No new mortgage insurance required

    3.    No limit on financed closing costs

    4.    Appraisal might be waived

    5.    No reserves required

    6.    No maximum debt ratio (with DU approval)

    7.    Your loan may be placed with any Fannie Mae approved lender

    8.    No limit on number of financed properties

    9.    Mortgage payment can increase if borrower is realizing other benefits

    10.    The subject property may be currently listed for sale

    ______________________...

    Here are the major restrictions on the Fannie Mae DU Refi Plus program:

    1.    No cash out is allowed (borrower cannot receive more than $250 at closing)

    2.    New loan amount can go up to conforming maximum of $417K on a single family residence in certain areas.  Program guidelines allow for up to $729,500 in some areas, but individual lenders will probably not allow you to exceed $417K.  Check with your mortgage broker to confirm maximum loan amount in your area.

    3.    New loan must benefit borrower, either by lowering the monthly principal and interest payment, shortening the loan term, or changing to a fixed rate

    4.    Borrower must qualify under conventional guidelines (must be approved by DU and provide all documentation required by DU)

    5.    No new secondary financing is allowed, and existing secondary financing must be subordinated (kept in place), or paid off with borrower’s own funds.  Second mortgage cannot be paid off with the new first.

    6.    No 60 day late mortgage payments allowed during the previous 12 months

    7.    None of the original borrowers may be removed from the new loan

    8.    All loans delivered to Fannie Mae after February 28, 2009, FHA, VA, second mortgages, and reverse mortgages are ineligible, and some lenders may not refinance subprime, ALT-A, Expanded Approval, and other loan types under this program

    9.    Loan term may not be lengthened

    10.    Standard add-ons to the fee apply to condos over 75% LTV

    11.    Standard add-ons to the fee apply to 2 to 4 unit properties

    12.    Add-ons to the price for non-owner occupied properties make the program unattractive for refinances above 75% LTV.  Standard add-ons still apply at or below 75% LTV

    13.    Add-ons to the fee apply to LTV’s over 95%

     

     

    The primary benefit for most borrowers is being able to refinance a property that has declined in value up to an LTV of 105%, which may not be able to meet conventional refinance guidelines.  Current interest rates are near 50 year lows, and a large percentage of homeowners who purchased or pulled cash out in the last five years might be unable to refinance otherwise. 

    What this means is that a borrower who purchased a $400,000 property with a 20% down payment might be unable to refinance under conventional guidelines if his property value has declined to $300,000 since the purchase.  A conventional refinance at 80% of the property value (80 LTV) would now qualify the borrower for a maximum loan amount of $240,000 with no mortgage insurance requirement.  The borrower would need to come up with $60K to $80K out of pocket, plus closing costs to qualify.

    Under the Fannie HARP refinance program, the loan could be made at 105% of the current property value, or $315,000 with no pricing add-ons to the fee up to 95%.

    If the principal balance of the original $320K loan had been paid down to $310K since the purchase, it would leave $5K that could be used for financing the closing costs.

    Borrowers are allowed to use their own funds to buy the new loan amount down to 105% in order to qualify, if the property is too far underwater (above 105%).

    Mortgage refinances that exceed 80% LTV because of declining property values would normally be subject to the added expense and further complicated by the requirement to add mortgage insurance, which is eliminated under the Fannie Mae DU Refi program.

    Loans with existing mortgage insurance would be required to replace it with the same level of coverage, but most lenders would disqualify these properties from using the program.  Consult your mortgage broker if your loan has existing mortgage insurance.

    Mortgage insurance only protects the lender, and has no benefit to the borrower.

    Since there is no limitation on combined (total) LTV, the borrower can refinance his first mortgage up to 105% of current property value, regardless of the size of any current second mortgage, but the second mortgage must be subordinated (kept in place) or paid off from the borrower’s own funds.  (The new lender may require the existing second to meet standard guidelines, so not every existing second will qualify for subordination and may be required to be paid off, a deal killer for most homeowners.)

    No new or replacement secondary financing is allowed.

    So, using the above example, if the borrower had purchased a $400,000 home with a first mortgage of $320K and a second mortgage of $80K (100% financing, zero down payment) which had declined in value to $300K, the borrower could still refinance the first mortgage to a maximum of $315K (105% LTV), and subordinate the second mortgage. 

    The borrower would have to qualify for the new first mortgage including the payment on the existing second mortgage, which should not be a problem assuming that the borrower’s income has remained the same or increased, the payment is declining on the new first mortgage, and the other monthly debt payments have not increased by more than the savings on the new first mortgage.

    Any amount of non-recurring closing costs (points and fees) may be financed in to the new loan amount and any amount of recurring closing costs (property tax, homeowner’s insurance, mortgage interest, etc) plus up to $250 cash back to the borrower can be financed in to the new loan amount, as long as the new loan amount does not exceed 105% of the property’s appraised value.

    This enables homeowners that are not pushing the maximum program LTV to buy their interest rate down to the low 4% range, without paying anything out of pocket.

    The reality of current lending programs makes only the 15 year fixed, 20 year fixed and 30 year fixed rate loan programs practical and desirable under the Fannie DU Refi Plus program.  Balloon and interest only programs are not allowed and adjustable rates are priced worse than fixed rates.

    Here is one point that may not be obvious to most consumers:  there is no cash out allowed on this program.  What that means is:

    1.    Any amount of closing costs can be financed in and not be considered a cash out loan.

    2.    The borrower can receive a maximum of $250 in cash at closing and not be considered a cash out loan.

    3.    Even if the borrower is receiving no cash at the closing and paying all closing costs out of pocket, the new loan is ineligible for the program, and considered a cash out loan, if any new second mortgage has been taken out in the past twelve months before the new loan closes,

        Or:

        An advance has been made from any existing equity line of credit on the property    within the last twelve months before the new loan closes.

    ______________________

    The first step is to find out if your loan is currently held by Fannie Mae.  You can go to the following link:

    http://loanlookup.fann...

    If Fannie Mae holds your current mortgage, any mortgage broker can place your refinance at any Fannie Mae approved lender.

    Here is a link to frequently asked questions about whether your existing loan qualifies for the Fannie Mae DU Refi Plus:

    http://www.fanniemae.c...

    If you own 1 – 4 unit residential property in the state of California, I would be glad to handle your refinance personally.  Please contact me at haroldgoodman@gmail.com for a free consultation.

    If Fannie Mae does not own your mortgage, you can try the following link to see if Freddie Mac owns it:

    https://ww3.freddiemac...

    If so, you can read my next article covering the Freddie Mac Relief Refinance program.

    Disclosure: No holdings in FNM, FRE or WFC

     

    Stocks: FNMA, FMCC, WFC
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Comments (11)
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  • Joe Condo
    , contributor
    Comment (1) | Send Message
     
    I have a condo with a wells fargo mortgage and want to refi under HARP. There is a restriction which disallows condos that are "Resort" condos. Where can I find a definition of "Resort" in this context?
    26 Jun 2009, 04:14 PM Reply Like
  • Eden
    , contributor
    Comment (1) | Send Message
     
    Please comment on how this would affect the borrower's ability to walk away from the new mortgage in the future. Would the government come after your assets or even garnish wages?
    21 Jul 2009, 10:54 PM Reply Like
  • User 465653
    , contributor
    Comment (1) | Send Message
     
    Wells Fargo quoted me a $542,529 refi. under harp (fannie insured) program of 4.25% at 5.625 pts. with $2,300 in closing costs. I locked at this rate. Now they are saying that the lowest they can offer me is 4.375% for 5 pts. because charging over a 6% combined pts. and fees is against the general rules and considered predatory lending. My appraisal came back at 84% LTV. I'm paying for the pts. and fees out of pocket. It's only $265 over their 6% fee limit rule that they just pulled out of the air. Is this true?? I'm upset that I locked at a certain rate and now they won't honor it. Can someone tell me if they are being honest or not? Thanks.
    3 Aug 2009, 05:54 PM Reply Like
  • Loan Modification
    , contributor
    Comment (1) | Send Message
     
    Good info article. Thanks for sharing this post.
    5 Aug 2009, 03:20 AM Reply Like
  • Disillusioned Underwriter
    , contributor
    Comments (2) | Send Message
     
    There ARE anti-predatory laws that restrict the total amount of closing costs that a lender can charge. It sounds like the Loan Officer might have quoted you certain terms, then, when the loan went through processing at the bank, it was discovered that the Loan Officer screwed up. It's against the law to charge excessive fees, so they had to requote you pricing (rate and points) that would not have excessive fees. The closing costs are going to be whatever they are (title fees, recording fees, appraisal, underwriting fee, application fee etc), so the bank can't change that much. So the only way to fix it is to change the pricing, which combines rate and points. IE, paying more points gets you a lower rate. So, if they quoted you points that were too high, they reduce the points, but raised the interest rate. Perhaps that Loan Officer needs to reduce his cut of the deal, and eat the loss of the points. Sometimes they have 'wiggle' room in the points, it all depends on the lender.

     

    On Aug 03 05:54 PM User 465653 wrote:

     

    > Wells Fargo quoted me a $542,529 refi. under harp (fannie insured)
    > program of 4.25% at 5.625 pts. with $2,300 in closing costs. I locked
    > at this rate. Now they are saying that the lowest they can offer
    > me is 4.375% for 5 pts. because charging over a 6% combined pts.
    > and fees is against the general rules and considered predatory lending.
    > My appraisal came back at 84% LTV. I'm paying for the pts. and fees
    > out of pocket. It's only $265 over their 6% fee limit rule that
    > they just pulled out of the air. Is this true?? I'm upset that
    > I locked at a certain rate and now they won't honor it. Can someone
    > tell me if they are being honest or not? Thanks.
    23 Aug 2009, 11:20 AM Reply Like
  • Disillusioned Underwriter
    , contributor
    Comments (2) | Send Message
     
    I really don't believe the ramifications would be any different than any other mortgage loan. It's never good to "walk away" from any mortgage - that's adverse credit (foreclosure) that will stay with you for a long time. A lot of people think that if they can't pay the mortgage, that they can just "give back" the house to the lender. It absolutely does NOT work that way, and there are serious consequences of "walking away" from a mortgage.

     

    On Jul 21 10:54 PM Eden wrote:

     

    > Please comment on how this would affect the borrower's ability to
    > walk away from the new mortgage in the future. Would the government
    > come after your assets or even garnish wages?
    23 Aug 2009, 11:41 AM Reply Like
  • rin
    , contributor
    Comment (1) | Send Message
     
    What can u tell me about the new Refi Plus that allows 125% LTV ..my WF mortg consultant called to offer this. Are there limits on the amount of points, etc., that WF can charge under these federal programs?
    23 Sep 2009, 01:58 PM Reply Like
  • alagan
    , contributor
    Comment (1) | Send Message
     
    I received an offer two days before from WellsFargo 5.125% with closing cost $85 and no points. Next day they change it to 5.125 with $1055 closing cost (I was told it was an unscheduled price worsening ... not sure :( ). In both offer, I have to deposit $400/- This is not refundable after 30 days.

     

    Is it the fair market rate for the HARP program. Please advice.
    6 Nov 2009, 10:16 AM Reply Like
  • Bren74
    , contributor
    Comment (1) | Send Message
     
    I absolutely love how Wells Fargo comes up with reason after reason not to allow people to REFI even under HARP. Gee, they get bailed out and won't allow people to REFI at these good rates. They own these loans and if they can see responsible homeowners that are not going to short sale or foreclose they come up with every reason in the book not to allow REFIs to give the homeowner a better deal. THEY SUCK!!!!
    12 Feb 2011, 03:47 PM Reply Like
  • Lipoxy
    , contributor
    Comments (2) | Send Message
     
    What happens to second mortgage, when the firts mortgage is refinanced under HARPP? Does the 2nd mortgage company is obliged to refi with current lower interset rate?
    21 Oct 2011, 04:30 AM Reply Like
  • Lipoxy
    , contributor
    Comments (2) | Send Message
     
    My first motgage company agreed to efi at 4.95% down from 6.125 under HARP. Does the 2nd mortgage company obliged to rrefi at lower rate?
    21 Oct 2011, 04:30 AM Reply Like
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