Great Rates + Declining Values = No Refi for You. Maybe Not.

This great info was shared with us by Tera Gilbert of Wells Fargo Mortgage.

Great Rates + Declining Values = No Refi for You. Maybe Not.
While interest rates have been at levels not seen in generations, not everyone has been able to benefit. As home values have come down across the country millions of homeowners have been unable to refinance.

When applying for a home loan, one key component in underwriting is the amount of equity or down payment in the transaction. As home values have declined, even in some cases where someone put a sizable down payment into the purchase of their home, refinancing to achieve a lower payment has been unfeasible.

In details of the Housing Affordability and Stability Plan released this week, four to five million responsible homeowners have been targeted to obtain assistance in lowering their payments. People who now have less than 20% equity in their home have experienced difficulty in achieving lower payments by refinancing. Homeowners with loans that are owned by Fannie Mae and Freddie Mac may now be able to refinance into a lower interest fixed rate. This will also apply to homeowners with an adjustable rate (ARM).

One caveat will be that the new loan amount will be capped at 105% of the value of the home. As many will seek to include their closing costs in the loan amount, this will need to be factored in when considering this as an option.

To pre-qualify for the Making Home Affordable refinance, you must be able to answer "yes" to each of the following four questions.

1. Is your home your primary residence?

2. Do you have a Fannie Mae or Freddie Mac loan?

3. Are you current on your mortgage payments? Current, in this case, means not having been more than 30 days late in the last 12 months.

4. Do you believe the amount you owe on your first mortgage is the same or less than the current value of your home?

To determine who owns your loan, call your servicing company and ask. If you have difficulty reaching them, you can also contact Fannie Mae at 800-7FANNIE or Freddie Mac at 800-FREDDIE between the hours of 8am and 8pm EST. You can also click the following links and request the information online.

www.fanniemae.com/homeaffordable
www.freddiemac.com/avoidforeclosure/

Other issues may exist for you in getting this loan. If you currently have a second mortgage or Home Equity Line of Credit (HELOC), the lender will need to re-subordinate their loan to the new first mortgage. Not all second lien holders have been willing to do this.

One other question will involve Private Mortgage Insurance (PMI). Will PMI be required on these new loans as it is required on all other agency loans when the loan-to-value exceeds 80% of the appraised value?

While a new appraisal will not be required, the parameters for determining the value used in the transaction are being delivered to loan servicing companies and additional information can be supplied by your servicer.

What if I Still Can't Refinance?
The final part of the HASP legislation involves assisting homeowners that will not be able to refinance but are still experiencing financial difficulty. For these borrowers, a loan modification may be warranted and it is expected that 3 to 4 million people may be able to get assistance.

Making Home Affordable modifications are intended for people that can no longer afford their monthly loan payments but still desire to remain in their home. In order to qualify, the affordability of your payment must have been impacted by a hardship.

A hardship that may qualify for modification could include, but not be limited to, a change in your interest rate, decreased income, or increased expenses related to issues like medical expenses, increased property taxes and/or hazard insurance.

To qualify for a modification under the terms of the plan, you must be able to answer yes to the following questions:

1. Is your home your primary residence?

2. Is the amount you owe on your first mortgage equal or less than $729,750?

3. Are you having trouble paying your mortgage? Reference above for examples.

4. Did you obtain your mortgage before January 1, 2009?

One item to note is that the program is not available for jumbo loans. In many areas of the country, a jumbo loan is any loan amount between $417,000 and $729,750. Areas of the country where the loan amounts exceed $417,000 and are still considered eligible include high cost areas like parts of California, Florida, Washington DC, and the Northeast. Your servicing company can provide greater eligibility details.

Loan modifications included in the program are designed to assist the homeowner reach a new mortgage payment, inclusive of principal, interest, property taxes, insurance and homeowner's association fees of not more than 31% of gross monthly income. In order to arrive at this number, participation from both the lender and the government may be involved.

What's Needed to Qualify for Either Program?
In order to qualify for either option, the homeowner needs to know that full qualification will be needed to ensure the borrower can meet the new payment. This will include supplying full income documentation and disclosure of assets. They will also be required to provide documentation proving the property is a primary residence. This can include verification through a credit report or other documentation such as utility bills.

To qualify for the modification program, evidence of additional housing expense items will be required including any other loans like cars, credit cards and student loans and their minimum payments, regular household expenses and a hardship letter detailing your situation and inability to make your payment.

Finally, all lender and loan servicers' participation is voluntary in either situation. Just because the programs are now available does not guarantee you will be able to find relief. Not all people in distressed situations will be helped. In these cases, there is a website detailing additional options that can be found at FinancialStability.gov.

Final Recommendation
The details of the legislation released this week may not assist everyone in need of relief. However, if the bill does what is expected, it could assist in lowering the mortgage payments or save people from foreclosure at the rate of 7 to 9 million homeowners. While the final impact on the economy may not be known for years, the first step is to find out if it will work for you.