Something to grab onto if you're in rough water
There is a great misconception that there are no options for struggling homeowners. The reality is that major players in the mortgage lending market, specifically Fannie Mae, Freddie Mac and HUD (The Department of Housing and Urban Development), would like to avoid foreclosures whenever possible. As a result, they have created loan programs designed with this end in mind.
Fannie Mae Refi Plus
Current market conditions have created an environment where homeowners who previously put 20% or more down could face loan denial and/or mortgage insurance requirements. In addition, the uppermost limit in even flexible programs is capped between 95% and 96.5%. So many homeowners are stuck between a rock and a hard place. They are undoubtedly paying too much, but, due to a depressed housing market, they are outside of loan approval guidelines. Even if they are below generally accepted requirements and a refinance could lower the rate, a transaction would actually add cost to the homeowner.
The Fannie Mae Refi Plus Program, which is available from most Fannie Mae affiliated lenders, allows a homeowner to refinance an existing Fannie Mae loan at up to 125% of a property’s appraised value without the burden of private mortgage insurance and an added layer of underwriting. Although requiring adherence to all other guidelines, such as credit score, assets holdings and income, this option allows borrowers who are seemingly underwater on their mortgages to stabilize their housing expense.
Freddie Mac Open Access
Fannie Mae and Freddie Mac typically mirror one another in mortgage loan program offerings. Though not always exact matches, Freddie Mac’s programs do match the intent of their larger counterpart. In this line of thinking, Freddie Mac offers the Open Access Loan Program. Like Refi Plus from Fannie Mae, Open Access allows homeowners with existing Freddie Mac held loans to refinanced at higher loan-to-value without the burden of mortgage insurance. This program is available from any Freddie Mac affiliated lender.
FHA Streamlined Refinance
Since HUD backs many loans in the marketplace, they too have needed to develop mechanisms to assist struggling homeowners. They most notable of these is the FHA Streamlined Refinance. Although not as dynamic as the Fannie Mae and Freddie Mac programs, this program allows homeowners to refinance their loan under FHA guidelines without an appraisal, which alleviates a major obstacle preventing refinances from making it to the closing table. In addition, the program does not require the borrower documentation required for most deals. While they must provide proof of employment, homeowners need not provide bank statements, tax returns and other documentation generally associated with a loan transaction. In many cases, a prospective borrower can make it from application to close in half the time of other refinances.
The First Step
As with any loan transaction, the first step begins with the homeowner. The problem is that many have been cowed into inaction by reports in the media that nothing can be done and that the anemic housing market presents an insurmountable impediment to securing a better rate and more secure financial future. In this case, however, the worst course of action is inaction. Only by picking up the phone and reaching out to a lender or lenders can you know what options are available and all it costs you is your time.
We’d like to thank RobMan for kindly sharing today’s photo via the Creative Commons’ License.
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August 25, 2010 at 9:19 am
And what options are there for those of us who’s LTV is over 200%? You know those of us who are victims of the gamed system called ponzieconomics that allowed banks to give away loans to anyone without documentation, drive up housing prices to unprecedented levels, and allow the banks to sell all those crappy loans to Fannie and Freddie so the banks would have more monopoly money available to loan out again! Oh yeah its called strategic default. You should report all the options available to underwater homeowner not just the ones that have been around forever and the banks pay you to report on. How about you report on how it is that Fannie and Freddie can take all our tax dollars but not allow principal reductions!
August 25, 2010 at 11:12 am
Doug: I am also in the mortgage banking business and own four houses, 3 of which are owned by FNMA. My question to you is why do I have to go through a refi at all? Given all the bailouts to defaulted homeowners, why should I have to spend thousands of dollars to go through a full refinance as my REWARD for continuing to pay my mortgage and property taxes during this crisis?
Why can’t Congress bail me out and mandate an across the board rate cut for homeowners in a FNMA/FHLMC loan? This wouldn’t cost taxpayers anything.
It would hurt the mortgage bankers who want the biz but they aren’t getting it anyhow. It would hurt Wall Street and other Banks who are invested in the higher coupon MBS – but do we care? We have already bailed them out too.
It would help spur some consumer spending. Mr. Bill Gross (PIMCO) suggested something similar at the recent housing finance summit in DC.
There is no need for those borrowers that are current and responsible to have to go through a full refi when a simple rate reduction can be mandated.
Hop on board Mr. Katz, the programs you outline above are not necessary. A congressionally mandated rate reduction is the way to go.
Thanks.
August 25, 2010 at 11:43 am
Please understand that it is not my job to evaluate the options. My job as a responsible member of the mortgage banking community is to inform my clients and potential clients of the options available to them.
Your angst seems to center around the cost aspect. I know of no time, now or in the past, where refinance transactions were free. Although loans can be structured “no cost,” there is a cost component associated with any loan that must be accounted for.
I feel your argument is more a political one. With respect to what I do on a daily basis, I am not political. I am pragmatic. I feel that my client’s best interest is of the utmost concern and not whether or not I feel that it jibes with my own political beliefs.
August 25, 2010 at 11:07 pm
Doug, I for one thank you for this information. It’s new to me and new possible option is better than nothing at all. My LTV is 150% so I am not sure if I qualify for any, but thanks for posting this kind of information.