Getting Out from Under
Snow may not be the only thing that’s had you buried this winter. But while warming temperatures gradually erase the reminders of this historic winter season, thanks to the housing crisis, it may be the weight of your home that has you underwater.
Until the last year or so, the term “underwater” meant nothing more to most Americans than its literal interpretation. Unfortunately, the term has become all too familiar to millions of Americans who owe more on their home than it’s worth. By some estimates, approximately one out of four homes is currently underwater.
In response, one year ago this week, the US Treasury Department introduced the Making Home Affordable (MHA) program. Designed to stabilize the housing market by encouraging lower rates and making it easier to refinance and avoid foreclosure, the program has two options to benefit borrowers.
This is the first of a two-part series focusing on each of the MHA programs—the Home Affordable Refinance Program, commonly referred to as HARP, and the Home Affordable Modification Program, or HAMP. Many of you may be turning the page at the excitement of those titles, but if you find yourself in dire need of their benefits, this information just may help to keep you in your home.
Since HARP is due to expire first (June 10, 2010), it will be the focus here. HAMP, btw, is scheduled to continue thru Dec 31.
An underwater loan may be eligible for a refinance through the Home Affordable Refinance Program, allowing qualified homeowners to refinance into a new 30, or 15, year fixed rate mortgage up to 125% of their home’s value. With a value of $300,000, this would allow a borrower owing up to $375,000 to participate.
While you can’t owe more than 125% of your home’s current value on your first or primary mortgage, you can still qualify even if your total mortgage debt including a second mortgage, home equity loan or line of credit, exceeds 125%. However, the holder of your second mortgage must agree to remain in a junior position (subordinate) to the refinanced loan for you to qualify.
Not every underwater loan, however, qualifies for HARP. If you’ve had a delinquent mortgage payment in the prior 12 months, you’re disqualified. But contrary to popular belief, you don’t have to be in financial difficulty to qualify for a HARP refinance.
Some participating lenders won’t consider homeowners for this program unless they’re experiencing financial problems, but others may be more flexible. You do NOT have to refinance with your current lender—you can use any Fannie Mae or Freddie Mac approved lender participating in the program.
In case you’ve had a late payment(s), be sure to check out the next issue because HAMP specifically targets such borrowers.
Additional HARP guidelines include:
•Conforming loan amounts only (up to $417,000).
•Current loan must be owned or guaranteed by Fannie Mae or Freddie Mac. If you don’t know, check their websites. Both have ‘look-up’ functions dedicated to this purpose.
•Current loan must have been originated prior to Jan 1, 2009.
•Must be the borrower’s primary residence. Second homes and Investment properties do not qualify.
•Must have income sufficient to support payments under the new loan.
•Credit score requirements based upon Fannie and Freddie guidelines.
•Rate and Term refinances only. Cash-out is not allowed. Only transaction costs can be wrapped into the refinanced amount.
In times like this, it’s also important to recognize scams. Foreclosure rescue scams have lured many unsuspecting borrowers and turned a bad situation worse. Beware of anyone who asks you to pay a fee in exchange for a “counseling service” or someone who tries to convince you to sign or transfer over the deed to your house.
Do not sign over the deed to your property to any organization or individual unless you’re working directly with your mortgage company to forgive your debt. Finally, never make a mortgage payment to anyone other than your mortgage company without their approval.
One year later, debating the success, or failure, of these programs falls well outside the scope of this column. Much of the current criticism surrounding them says they aren’t reaching enough of the homeowners who so desperately need assistance. And those claims, at this point, may be well founded.
By most estimates, less than 5% of those who may qualify have. The exact reasons behind this are the center of the debate. But regardless of which side of that discussion one would fall, it would be difficult to dispute that it is, at least, an important and necessary opportunity for many Americans to keep their homes
So pass the word. Sadly, you may not have to look very far.
Chris Beagle is a Senior Loan Officer at Fairway Independent Mortgage Corporation. For more information, contact Chris at 302-260-7090.