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More Help for Underwater Homeowners?


By Rick Cirelli

There has been a lot of press about the enhanced programs to help homeowners who are underwater to refinance. If you owe more than your home is worth, there are two programs that may benefit you.


If your Loan is Owned by Fannie Mae or Freddie Mac: 

These agencies own about 50 percent of the mortgages in the US. If your current loan is owned by Fannie Mae or Freddie Mac, and you are underwater, more homeowners are about to be able to take advantage of some changes in the Home Affordable Refinance Program known as HARP2.

Keep in mind that not all details are known yet. The program should be widely available by April 1. Here are the main things to look for regarding HARP2 loans:

·         Your loan must have been closed before May 31, 2009

·         The current loan-to-value (LTV) ratio must be greater than 80 percent. There is no longer a cap on the maximum Loan-to-Value ratio

·         The mortgage cannot have been refinanced under HARP previously

·         No Mortgage Delinquencies in the past 6 months and no more than one mortgage delinquency in the past 12 months

·         No Foreclosure in the past 7 years

·         Short Sales must be at least 4 years

·         Appraisals – In many cases, borrowers won’t have to pay for a new appraisal. Fannie or Freddie will use their automated appraisal system

·         Limited Documentation will be available for some borrowers

·         2nd Mortgages Must Resubordinate – Borrowers can have a second loan of any amount and still qualify, as long as the holder of the second mortgage re-subordinates it to the new loan. Most of the big lenders have agreed to do so, but there is no guarantee they or others will

·         Mortgage Insurance Must Transfer – If borrowers have mortgage insurance on the existing loan, they must maintain it, but they should be able to transfer that insurance to the new loan at the old premium rate, according to Freddie Mac. The big mortgage insurers have agreed to allow this, but again there is no guarantee all will.
There are still many questions about the program, such as the interest rate, whether lenders will impose additional fees or underwriting requirements beyond what Fannie and Freddie require, and whether investors will be willing to buy securities backed by these new HARP 2 loans.


What If You Have an FHA Loan?

If you have an FHA loan rather than a loan owned by Fannie or Freddie, the government just announced some major enhancements to the FHA Streamlined Refinance program.

Until now, homeowners with FHA-backed mortgages who use FHA’s streamlined refinancing program were charged an up-front mortgage insurance premium of 1 percent of the outstanding loan balance and an additional 1.15 percent as an annual premium. In most cases, the high cost of the mortgage insurance negated the value that might have been gained by a lower interest rate.

Now, FHA is reducing the upfront premium from 1.0% to just .01% and cutting the annual fee from 1.15% to 0.55 percent. To be eligible, your exiting FHA loan must have been originated before June 1, 2009

If you are buying a new home, FHA down payments are only 3.5% of the purchase price with loan amounts up to $729,750 in many California counties. The higher mortgage insurance premiums still apply, but if your down payment is limited, this is the best way to finance that home you want to buy.