HARP 2.0 “The Good, the Bad and the Ugly”

Updates added to this blog 4/13/2012
The newly released HARP 2.0 (Home Affordable Refinance Program) is now available to the public for those who have conforming mortgages owned by either Fannie Mae or Freddie Mac (click on either to see if they own your mortgage)

The Good:
This newly revised program is designed for those who have continued to make their house payments on time even though the value of the home has dropped to a point that traditional refinancing is no longer an option. So it does not matter how much you owe vs. what your home is valued at to refinance into todays low interest rates. You can even refinance if you currently have mortgage insurance on your loan. If you do have MI then the current MI premium would be the same on the new lower rate loan payment.

If you have a second mortgage you can still take advantage of the HARP 2.0 program but the existing second mortgage must be re-subordinated (meaning that lender must agree to stay in 2nd lien position) so that 2nd mortgage payment will continue as it is now. The HARP program will only allow you to refinance the existing first mortgage.

This program will even allow you to refinance your investment property(s)

No appraisal is required, lender provides an appraisal waiver or performs a AVM (Automated Value Model) to determine the homes current value, but since there is no restriction on LTV (loan to Value) it does not matter how high the LTV ends up being, heck you could get approved with a LTV at 165% with this program.

Pricing from Fannie Mae or Freddie Mac is based on several factors. If your loan is over >125% LTV and when you have a 2nd mortgage called CLTV (combined loan to value)a small hit to pricing will effect your loans final rate pricing. In addition all files are run through an automated underwriting system and depending on your credit scores and DTI (debt to income) the lender receives tiered approval that can also effect pricing. "Best to apply for actual pricing of your new loan"

The Bad:
Many lenders have added secondary market overlays to the HARP program that require additional conditions that HARP guidelines do not ask for, like setting maximum LTV (loan to value) restrictions on what they will approve, which defeats the purpose of helping the homeowner. The only way they waive this condition is if they are the current mortgage servicer of your mortgage. “Which really means they do not want to assist those outside of their current loan servicing pool of loans”

Other added conditions are also making it frustrating for some qualified applicants if they end up working with the wrong lender. At Sound Mortgage, Inc. we provide a true HARP refinance option with no secondary market overlays (conditions) that Fannie Mae or Freddie Mac do not require.

The Ugly:
To be eligible for this program your mortgage must have been delivered to Fannie Mae or Freddie Mac prior to June 1st 2009. If your loan was not before this date then the HARP 2.0 program has left you out at this time. “Not to say they will not open it up to loans they received at a later date sometime in the future”

No 60 day late payments in the past 12 months. Even though the HARP 2.0 does not require a min. credit score, you will need to have a min. score of 620 to get the automated underwriting system to approve your refinance and since rate pricing is credit score driven, the lower scores will make your final interest rate higher. (If credit scores are lower than 620, it may be possible to still get approved through manual underwriting)

Here are a few documentation items you will need to provide your lender to get your loan file approved:

• Loan Application (on-line application here)
• Salary/hourly/bonus: One pay-stub
• Commission/self-employed: One-year (2011)federal tax return
• Current bank statements for assets shown on loan application
• Current copy of your first (and if applicable) second mortgage statement(s)
• Homeowner’s insurance information
• Photo ID – Drivers license and SSI card or passport (two pieces of ID required per Patriot Act)

Previous blog post back in October 2011, you can find many Frequently Asked Questions about the new HARP 2.0

FHA’s New Streamline Refinance Program Announced

HUD has now published the Mortgagee Letter: The new program will be available for FHA Case Numbers assigned on or after June 11th 2012. This means eligible borrowers will need to wait about 3 months (and hope that rates remain low) before they can lock in.

Now here’s a refinance program that actually makes some sense. On March 5th The Obama Administration announced changes to the FHA’s streamline refinance program. The broad details are already on the street (at the WSJ, and soon to be many more outlets) but here are the basics:

Here’s what you need to know about the changes:

• The new fee/cost structure only applies to FHA loans originated prior to June 1st 2009 which are being refinanced through the FHA’s streamline refinance program.
• For eligible loans, the up front FHA premium is being reduced from the current 1% of the loan amount to .01%.
• The monthly FHA insurance premium is being rolled back to .55% of the loan amount per year. Down from the current 1.15% (soon to be 1.25% read about these changes, click here)
• Program will be available for FHA case numbers assigned on or after June 11th 2012. (Important; do not let anyone get a new FHA case number until this date or you may be exclude from eligibility of the new program)

Bottom line: This is a huge, positive change – it effectively “grandfathers in” the monthly insurance premiums that were in effect before the FHA began ratcheting up these fees two years ago; and it will open up refinancing to sub 4% rates for many borrowers who to this point have not been able to take advantage of them.

FHA Streamline Refinance Basics:
Being a member of the FHA club confers certain advantages when it comes to refinancing. The general principal of which is: FHA already insures your risk, so if you have a solid track record in making the payments on your existing FHA loan, they care a LOT less about the details that often trip-up traditional refinances – the process is as the name suggests: Streamlined.

Using an FHA Streamline Refinance, you can:

• Refinance with ANY lender – you are not required to refinance with your current mortgage servicer.
• Refinance without documenting income (lenders will require that you are currently employed.)
• Refinance without an appraisal, or any measure of the property’s current market value. The original value (purchase price) is used and stays as the anchor on new loan for LTV (loan to value) especially for factoring when the monthly MI (mortgage insurance) goes away on your loan, typically at 79% LTV.
• Refinance with a checkered credit history: Credit is reviewed only in context of whether or not you have had any mortgage lates in the last year (though this is another instance where some lenders have set a minimum FICO score, even though the FHA does not.)
• Refinance a home that you have converted to a rental property (even though it was an owner occupied property when you took out the loan.)
• Refinance and leave an existing second mortgage or home equity in place (both loans/lines can be up to 125% of the original value of the property.)

With an FHA streamline refinance you cannot:

• Increase the loan amount to payoff other mortgages or debts.
• Refinance a conventional loan into an FHA streamline. Conventional-to-FHA refinances require an appraisal, full credit qualifying, and are subject to the current FHA mortgage insurance costs and structure.

Disclaimer: FHA has not released full program guidelines yet – so there may be some important, material details to follow. I am not communicating on behalf of or at the direction of HUD, FHA, or any governmental agency. To stay informed, please contact me and I will add you to my database of clients who can benefit from this program.

Low Down Payment - Lending Options “Getting The Best Payment Possible”

With lending options being very limited these days, for those wanting to buy a home with a small down payment. One of the biggest loan options for the past few years has been FHA, which only requires a 3-1/2% down payment, but FHA recently announced some expensive increases to those home buyers who would like to use the program utilizing the 3-1/2% down payment.

Effective April 1st the UFMIP (up front mortgage insurance premium) will increase from its current 1% to 1.75% fee and the monthly MIP (mortgage insurance premium) will also increase. The impact to the FHA home-buyer is higher monthly payments as shown in the example below using a $250,000.00 Purchase Example:

Current FHA
• Down Payment (3-1/2%) = $8,750.00
• Base Loan Amount - $241,250.00
• UFMIP (financed into loan) @ 1% - $2,413.00
• Financed Loan Amount - $243,663.00
• FHA 30 yr. Fixed Rate Mortgage @ 3.750% (this is not an offer to lend, only being used in example, so no APR is being provided)
• Monthly P&I Payment $1,128.44
• Monthly MIP @ 1.15% (mortgage insurance) - $233.51
• Total Payment P&I + MIP = $1,361.95 (plus taxes & homeowners insurance)

FHA after April 1st
• Down Payment (3-1/2%) = $8,750.00
• Base Loan Amount - $241,250.00
• UFMIP (financed into loan) @ 1.75% - $4,223.00
• Financed Loan Amount - $245,473.00
• FHA 30 yr. Fixed Rate Mortgage @ 3.750% (this is not an offer to lend, only being used in example, so no APR is being provided)
• Monthly P&I Payment $1,136.82
• Monthly MIP @ 1.25% (mortgage insurance) - $255.70
• Total Payment P&I + MIP = $1,392.52 (plus taxes & homeowners insurance)

The payment increases by $30.57 per month.

Another option available to home buyers is utilizing Conventional (Fannie Mae – Freddie Mac) type loan with 5% down payment and using LPMI (lender paid mortgage insurance) This option increases the interest rate over the standard BPMI (borrower paid mortgage insurance) that is standard in the mortgage market today. Here is an example using this mortgage option vs. using FHA

Home Purchase Price $250,000.00 with 5% down payment and LPMI option:

• Down Payment (5%) = $12,500.00
• Financed Loan Amount - $237,500
• 30 yr. Fixed Rate Mortgage LMPI @ 4.625% (this is not an offer to lend, only being used in example, so no APR is being provided)
• Total Monthly P&I Payment $1,221.08

This monthly payment is $171.44 less per month vs. the FHA option.

That’s over $2,000 a year in lower payments and has a bigger impact on income tax deductions, since the interest paid on your mortgage is tax deductible but mortgage insurance premiums are not. The conventional 95% loan is also available as the standard BPMI (borrower paid mortgage insurance) and the rate is lower by around .750% but once you factor the monthly MI payment, estimated at over $125 month to your P&I payment, the total payment PI + MI = $1,241.81 is $20.00 per month higher than the LPMI option with no MI. This is still a lower payment option than the FHA lending option.

In considering these conventional options LMPI vs. BPMI, the length of time you keep the property is very important since mortgage insurance does decline as the principle balance decreases, and once below 80% LTV (loan to value) based on the original purchase price, the mortgage insurance goes away. Then the lower interest rate with MI makes more sense over a longer period of time due to paying less in interest to the lender in buying the home.

Every borrower and purchase is unique and a detailed analysis should be performed to give the clients (buyers) options that best suite their goals and objectives.

FHA Changes Coming April 2012 Increased Mortgage Insurance Premiums

On Monday HUD announced that mortgage insurance for FHA loans will increase April 1, 2012 and again June 1, 2012. Mortgage insurance, similar to Fannie Mae and Freddie Mac guaranty fees, protects the lender in the even the borrower(s) loan goes into foreclosure.

FHA loans have two tiers of mortgage insurance. First type is called Upfront MIP which is typically financed into the loan and a monthly MI (mortgage insurance premium)

With the current FHA mortgage insurance before the new changes, there is an up-front mortgage insurance premium equal to of 1 percent of the loan’s amount. Upfront MIP can either be paid in the closing costs of the loan, or borrowers can finance it by adding it to the loan amount. In either option this fee is shown as a closing cost to borrower on the GFE (Good Faith Estimate) and the HUD (settlement statement) at closing.

There is also an annual MI premium that varies by loan type. For 30-year fixed rate mortgage, annual MIP is equal to 1.1% of your loan size for LTVs of 95% or lower. For everyone else, annual MIP is 1.15% of the loan size.

Annual MIP is paid monthly. The formula is (Loan Size) * (MIP Rate) / (12 Months) = Monthly MIP payment. So as you pay down your loan balance the monthly MI is reduced until you reach 80% of the original property value (sale price in a purchase transaction)

So what do these new FHA's mortgage insurance rates mean to someone using this program to buy a home?

Starting April 1, 2012, Upfront MIP for loans will increase from 1.000% to 1.750% of the loan size. Annual MIP fees, paid monthly with your mortgage payment will also change, effective April 18th they will increase by 10 basis points across the board, and by an additional 25 basis points for loans between $625,500 and $729,750.

$729,750 is the largest FHA loan limit. It's reserved for high-cost areas like the Washington, D.C. Metro area, New York City, and many parts of California.

If you or your client(s) are looking to take advantage of FHA’s low down payment requirement (3-1/2% down) for your next mortgage, the best way to avoid the new FHA fees is to have your FHA Case Number assigned before the new FHA MI premiums go into effect April 1, 2012. All existing FHA mortgages are un-effected and will use the "old" MI rates currently applicable on the borrower’s loan.

The reason these changes are going into effect is detailed very well in an article “Congress votes to restore FHA loan limits”

In 2000 FHA accounted for around 10.5% of the purchase market in this country and in 2005 – 2006 that dropped to around 3%, but since the mortgage crisis hit around 2007 FHA soared back as a viable way for home buyers with a market share in 2009 around 46%.

So Congress has been working to shore up the red ink at HUD / FHA with the increased MI fee’s and premiums.