The Cash-In Refi

August 5, 2010 by Leave a Comment

You’ve probably heard of a “cash-out” refinance where a home owner is taking equity out of their home for home improvements, debt consolidation or if they’re paying off a second mortgage that was not obtained when they purchased their home.   A “cash-in” refinance is a fairly new term and something I’m seeing first-hand due to the current insanely low mortgage rates.

Freddie Mac reports that “in the second quarter of 2010, 22 percent of homeowners who refinanced tehir first-lien home mortgage lowerd their principal balance…this ties the record for the third highest “cash-in” share since Freddie Mac began keeping records on refinancing patterns in 1985.  The revised cash-in share in the first quarter was 18 percent.”

“Cash-in” means that the home owner is bringing funds to escrow for closing.  Their loan amount is not high enough to cover closing costs and prepaids.   Sometimes home owners, with a healthy savings, will opt to pay for closing costs separately instead of financing it into the new loan but a majority of home owners opt to have the cost added to their payoff amount, thus increasing their original principal balance.   Some are deciding to plunk down enough cash to reach a certain loan amount or loan to value to obtain an improved interest rate.  For example, a Seattle area homeowner with a current loan balance of $575,000 might decide to use $10,000 towards her loan amount to obtain a high balance conforming mortgage rate instead of a higher non-conforming/jumbo rate.  (Current loan limits in King, Snohomish and Pierce County for a single family dwelling for high balance is $567,500).  UPDATE 1/1/2012: Loan limits currently $506,000 for conventional and $567,500 for FHA (and may change following years).

Some home owners are doing this because of loan to value issues–not because they have an extra grand or two burning a hole in their pocket.  I’ve had a few clients who have paid off and closed their home equity lines of credit to qualify.  Or perhaps they have an appraisal come in slightly lower than expected, exceeding the allowed loan-to-value guidelines.  For example, if a home owner in Bellevue was anticipating a minimum appraised value of $380,000 for his home to finance his Home Affordable Refinance loan amount of $399,000 with a 105% loan to value yet his appraisal comes in at $376,000; he could have his loan amount adjusted to 105% loan to value at $393,750, bringing in $5,250 to closing. 

Funds for closing will need to be documented, just as they would a mortgagae being used a home purchase, with statements from the accounts the funds came from.

Frank Nothaft, Freddie Mac Vice President and Chief Economist states:

“Interest rates on fixed-rate mortgages are at 50-year lows, making refinancing attractive if borrowers qualify, and similarly rates on savings instruments like CDs are also very low, which makes the choice of paying down mortgage principal very attractive to borrowers with extra cash reserves.”

I’m happy to review your current mortgage scenario at no obligation to help determine if refinancing makes sense for you.  The only catch is, your property needs to be located in located in Washington state since that’s where I’m licensed.

Filed Under: Refinance, Underwriting and Qualifying Tagged With: , , ,

Disclosure Periods: Three Days Counted Three Different Ways

August 3, 2010 by Leave a Comment

Anyone who's refinanced a home they live in probably remembers having to wait a couple days after signing before their loan can close.  This is called the Three Day Right of Recsission.  Thanks to all our new guidelines over the past year, we now have waiting periods triggered if your rate changes (for better or worse) with MDIA and once you receive your appraisal thanks to HVCC.   All of these waiting periods are for three days and each one is counted differently–go figure!   Here's a quick overview.

Home Value Code of Conduct. (HVCC) On residential transactions where there is an appraisal, we are required to provide the borrower a copy of the appraisal three full days before signing.  This is very similar to the right of recession where it's "postal days" that are counted.  A rush transaction can be put into a pinch if the appraisal is received late.   Receive the appraisal on a Friday, and the earliest the borrower can sign is Wednesday.

Three Day Day Right of Rescission:  This applies to refinances of a primary residence and is triggered the day of signing.  Three, what I like to call "postal days" must pass after you sign before your transaction can fund.  So if you sign on Monday, the earliest the loan can fund (close) is Friday; sign on Tuesday, the earliest your mortgage can fund is Monday.  

Mortgage Disclosure Improvement Act:  MDIA has two waiting periods: how soon a mortgage originator can collect funds after an application–depending on how an application is taken AND a redisclosure period if your APR (annual percentage rate) changes by an 0.125% for fixed rates and 0.25% for an adjustable rate.   The redisclosure period is also three days however the first day starts after the redisclosure and the earliest a borrower can sign is on the third day.  Most Seattle area real estate contracts have language providing an automatic extension of the closing date should closing be delayed due to MDIA (this is different than your rate lock extension).

Lately I've been renegotiating rate lock commitments for my clients, and even when I'm improving their rate, I need to redisclose and trigger the MDIA waiting period.  If it's a refinance, I need to be especially careful of not causing a lock extension if we run out of time due to the MDIA disclosure AND the Right of Rescission time period.

What was done "for the best interest of the consumer" has caused some transactions to be delayed.  It's important to be aware of the various timing factors that may be involved with your transaction.  Delaying your appraisal or not being able to get to your signing appointment in time with a refinance can wind up costing in the form of an extension fee when you factor all the timing periods…which everyone wants to avoid (and is why I like to lock a little longer when possible).

If I can help you with a mortgage on a home located in Washington state, please contact me.  Click here if you would like a rate quote for your home located in Washington.

Filed Under: Appraisals, Mortgage, Refinance

Give Yourself a Raise – Refinance with Lifetime Low Mortgage Rates

July 23, 2010 by Leave a Comment

If you own a home and have an interest rate in the 5% range, it could be worth while to check with a local mortgage originator to see if refinancing makes sense for your personal scenario.

Here are some things to consider:

  • Most mortgages are full doc now.  You need to be able to show your income.
  • Conventional mortgages may allow expanded loan-to-values with the HARP program (home affordable refinance).  
  • If your original conventional mortgage has an 80% loan to value and you're upside down now, you may qualify for programs without private mortgage insurance at today's low rates.
  • FHA and VA streamline refinances are available without appraisals.
  • Minimum credit score of 620 with Mortgage Master Service Corporation.
  • Refinances available for owner occupied, investment and vacation homes.
  • Refinances can be used to reduce your interest rate, reduce your mortgage term, consolidate mortgages or pay off debts.

Not everyone situation qualifies for a refinance, but you won't know unless you take a few moments to check it out.   Why not see if you can put some extra cash into your monthly budget?  If your property is located in Washington State, I'm happy to provide a rate quote at no obligation to you.   You can also see what rate's I'm quoting live by following me on Twitter (you can unfollow me anytime).

Filed Under: Refinance

Pricing a Home Affordable Refinance

July 1, 2010 by 1 Comment

Home Affordable Refinances allow home owners with conventional mortgages (Fannie Mae or Freddie Mac) who have had their homes depreciate refinance at competitive market rates.  

Factors that impact the mortgage interest rate are:

  • loan to value (new loan amount divided by the appraised value)
  • the lowest middle credit score of all borrowers on the loan
  • lock period and loan loan amount

A Seattle couple who purchased their home in 2005 for $400,000 with a 20% down payment with an interest only mortgage still has a loan balance of $320,000 if they have not made any additional payments towards principal.  This couple has excellent credit and is interested in refinancing but the big mystery is how much the home will appraise for since it's based on what other homes similar to theirs have recently sold and closed for.  

They currently make their mortgage payments to Chase and their mortgage is securitized by Freddie Mac, which means they probably qualify for the Freddie's Home Affordable Refinance Program:  Relief Refinance Mortgage.  With this mortgage, the loan amount is limited to current balance plus $5,000.   In order to limit the amount of cash possibly due at closing, I often price the rate at zero points to reduce closing costs.

Here's what current rates would look like based on different appraised values using a 30 year fixed rate priced with zero points (origination or discount):

Loan to value of up to 95%:  4.500% with 0 points (apr 4.571%).  This would be the same rate if the home has a loan to value of 80% (roughly $410,000).   Based on the Seattle couple's scenario, their home would need to appraise for $340,000 or more to qualify for this rate.

Loan to value over 95% and up to 97%:  4.625% with 0 points (apr 4.697%).  The home would need to appraise for around $335,000.

Loan to value over 97% and up to 105%:  4.750% with 0 points (apr 4.823%).  The home would need to appraise for at least $310,000.

Unless it seems real obvious to me what the homes appraised value may be, I tend to lock based on the worse case "possible scenario".  Once we receive the appraisal, we can adjust the rate accordingly.   If the appraisal comes in lower than the worse case "possible scenario", the home owner does have options, including bringing in cash to closing or terminating the refinance at the cost of the appraisal deposit.

Fannie Mae and Freddie Mac's Home Affordable Refinance program is helping many Washington state homeowners reduce their mortgage payments or convert their adjustable rate or interest only mortgage into a fully amortized mortgage.   This program is available for owner occupied, vacation homes and rental/investment property. 

Filed Under: Adjustable Rate Mortgage (ARM), Fannie, Freddie and FHFA, HARP - Home Affordable Refi, Refinance

Historic Low Mortgage Rates May Help Seattle Area Homeowners

June 29, 2010 by Leave a Comment

The mortgage rates we're witnessing today can help many Washington state homeowners if they take advantage by refinancing.  Even if your home's value has declined due to your homes in your neighborhood selling for less, you may still have options thanks to the Home Affordable Refinance program (set to expire in 2011) and FHA streamline refinances. 

Many of the home owners I'm helping with refinancing are:

  • reducing their monthly mortgage and creating more monthly cash flow to help with their budgets;
  • converting adjustable rate mortgages or interest only mortgage to fixed rates;
  • shortening their mortgage terms;
  • paying off second mortgage by including them in their refinance or paying off debts.

The Home Affordable refinance(HARP) is available for conventional loans that are securitized by Fannie Mae or Freddie Mac–this is different than who you make your mortgage payment to (the bank or mortgage servicer).   The Making Home Affordable Program allows for negative home equity and may not require an appraisal.  If your current mortgage doesn't have private mortgage insurance, then the new Home Affordable refi will not have mortgage insurance either–regardless of the loan to value!  This program is available for owner occupied, rental homes and vacation homes.   NOTE:  Second mortgages cannot be paid off with this program, however they can be subordinated.

Here's an example of HARP refi quotes (as of 12:30 today) based on a loan amount of $400,000 and an appraised value of $381,000 (roughly 105% loan to value) using a 30 year fixed with mid-credit scores of 740 and priced with zero points (origination or discount):

Owner occupied:  4.750% (apr 4.813) priced with 0 points.

Investment property/non-owner occupied:  5.125% (apr 5.360) priced with 0 points.

If your current mortgage is FHA, then you can opt for an FHA streamlined refinance.  If you have a little equity, you can opt to have an appraisal and finance up to 97% of the appraised value to include your closing costs and prepaids.   If your home does not have equity, and you have the funds available, a "no appraisal" option is available.  With the no-appraisal streamline FHA refinance, closing costs and prepaids cannot be financed.  Your loan amount is limited to your current balance less a possible credit of your original upfront mortgage insurance premium and your new upfront mortgage insurance premium can be financed.  

Here are FHA refinance rates (as of 12:30 today):

4.500% priced with 0 points (apr 5.090) appraisal optional.  Loan amounts up to $417,000.

4.750% priced with 0 points (apr 5.518) appraisal optional.  Loan amounts $417,001 – $567,500 in King, Pierce and Snohomish Counties.

FHA currently will allow up to an 85% loan to value for a "cash-out" refinance, which may include paying off a second non-purchase money second mortgage.  "Cash-out" would not be a FHA streamlined refinance and would require an appraisal.

If you have enough home equity, you may not need to do a streamline or Home Affordable refinance.  But it's nice to know your options!   If I can help you review your mortgage scenario, for a refinance or purchase, on a home located in Washington state, or if you would like your personal rate quote, please contact me!

Filed Under: Fannie, Freddie and FHFA, FHA, Refinance

It’s Official: Freddie Mac Reports Mortgage Rates at Record Lows

June 24, 2010 by Leave a Comment

Mortgage rates continue to trend lower providing some of the lowest mortgage rates of record.   From the Alan Zibel of the Associated Press:

Mortgage company Freddie Mac said Thursday that the average rate for 30-year fixed loans sank to 4.69 percent, from 4.75 percent last week.

That's the lowest since Freddie Mac began tracking rates in 1971. The previous record of 4.71 percent was set in December. Rates for 15-year and five-year mortgages also hit lows.

This provides many Seattle area home owners a great opportunity to reduce their monthly mortgage payments by refinancing.   Even if your home has depreciated, you may qualify for a Home Affordable Refinance with loan to values up to 105% or an FHA streamlined refi with no appraisal.   Mortgages currently without private mortgage insurance (originally with an 80% loan to value with the first mortgage) may qualify to refinance without private mortgage insurance even if their new loan to value is over 80%.

Home buyers who have locked in rates this past week will probably never have the need to refinance while they own their homes. 

Don't expect mortgage rates to stay this low for long.  Do contact your local mortgage professional and see if refinancing makes sense for your personal scenario.  If your home is located in Washington state, I'm happy to help you with your mortgage needs.   You can follow me on Twitter to see what rate scenarios I'm quoting live.

11:00 a.m. update:  Receiving an intraday rate sheet with pricing for the worse from one of the lenders we work with.  (I'm glad I work with more than one–not all of the lenders have increased pricing  yet).  It appears to be a slight adjustment, however we've been averaging 2-3 rate sheets per day…and they all add up.

1:30 p.m. update: Receiving the 2nd intraday rate sheet from the same lender with pricing for the worse.   Pricing with this lender is worse by over 0.3% in fee or 0.125% in rate from this morning's lows.

Filed Under: FHA, Refinance

Freddie Mac’s Home Affordable Refinance – Relief Refinance Mortgages

June 22, 2010 by 2 Comments

I've written about Fannie Mae's HARP program a few times here at Mortgage Porter, but I've neglected to write much about Freddie Mac's version.  This is partly due to the fact that when the Home Affordable program began, loans securitized by Freddie Mac required that you had to go back to your mortgage servicer: THIS IS NO LONGER TRUE.  In addition, Fannie Mae has a much larger market share than Freddie so I've been helping more Seattle area home owners who have lost equity with Fannie's program.   I'm pleased that Freddie Mac has expanded this program (Open Access) to not force home owners to return to the mortgage servicer which means, I can probably help you if your mortgage is owned by Freddie Mac (or Fannie Mae). 

Freddie Mac's program offers "borrowers who are current on their mortgage payments the ability to refinance to improve their financial situation when home values have declined…"   If you are behind on your Freddie Mac owned mortgage, you may qualify for the Home Affordable Modification.  I do not do loan mods.

Here's some information about Freddie Mac's Home Affordable "Relief Refinance" (if  you're mortgage is owned by Fannie Mae, click here).  Although some of these guidelines are similar to Fannie Mae, there are some differences.

In order to qualify for this program, your mortgage must be securitized (owned) by Freddie Mac prior to June 1, 2009 and be in first lien position.   To see if Freddie Mac owns your mortgage, click here.

The loan amount is limited to the mortgage balance plus the lesser of $5,000 or 4% of the current balance.  And the maximum cash back a borrower may receive is $250.   For example, if your current mortgage balance is $400,000, the most your new loan amount could be is $405,000.  You may find that you either need to bring cash in to close (typically a mortgage payment) or price the mortgage with zero points (while Congress still allows this as they're trying to ban rebate pricing). 

For King, Snohomish and Pierce counties, the maximum loan amount is $567,500 for a single family dwelling. 

This program is available for primary residences, second homes and investment properties.

If your original mortgage did not have private mortgage insurance, the new mortgage will not have private mortgage insurance even if your current loan to value is over 80%.

There must be a benefit to the borrower, such as a reduction in interest rate, replacing an adjustable rate mortgage with a fixed or a reduction in term.

Borrowers must be current on their mortgages with no "30 day late payments" in the last 12 months.

Second mortgages must be subordinated (they cannot be included or paid off with the refinance).  Most second mortgage lien holders are cooperating–but it is their call on whether or not they will permit the subordination to take place.

A full appraisal is required and loan to values up to 125% are permitted.

Income and employment are verified.  Minimum credit score is a 620.

The Home Affordable Refinance Program is scheduled to end in June 2011 2012.   If you're interested in a rate quote for your mortgage, at no obligation, to see if refinancing makes sense for your Washington state home, please contact me.

NOTE:  This post has been updated to reflect the extension of the HARP refi.

Filed Under: Fannie, Freddie and FHFA, HARP - Home Affordable Refi, Refinance

Refinancing Guidelines Need to Loosen Up for Housing Recovery

June 15, 2010 by 2 Comments

This subject has been gnawing at me for a while and I’m actually surprised I haven’t written about it here before.  In order for the housing market to really start recovering, I believe that the underwriting guidelines need to relax.  Whoa–you say, isn’t that what got us into this mess in the first place?  Well, I’ll argue that it was more of folks being able to buy more than they could afford (via stated income) that drove up prices and put them into homes where they could never afford the the payments over folks who used home equity by consolidating debts or doing who knows what with the cash (hopefully they banked it…in a safe place).

Helping someone keep their home by taking advantage of the lower interest rates prevents a foreclosure or short sale.  Yes, we have the Home Affordable Refinance Programs (HARP) thanks to President Obama–but many don’t qualify and many who do are not taking advantage of this temporary program.   FHA Streamline refinances now require an appraisal OR no closing costs can be financed–how is that better for American home owners during this time? 

If it were up to me, I would make it possible for home owners who have demonstrated they pay their mortgage and debts on time and who have documented steady employment to have their appraisals waived and closing costs financed so they don’t have to dip into their hard earned savings to finance their refinance.  Now this does happen sometimes with Fannie Mae’s HARP program…but not with Freddie Mac (which requires an appraisal and limits closing costs) and not with FHA.

Why penalize home owners who’s property values have plummeted because their neighbors sold their homes via short sale, lost it due to a legitimate foreclosure or plain walked away from their obligations?  Why punish home owners who have been making their payments and who qualify on every other point EXCEPT the appraised value?  If their payment is being reduced, it helps stabilize the neighborhood and reduces the risk of default for the mortgage servicer.  Loan to values need to be eliminated on rate-term refinances where a tangible benefit for the home owner exists.

We also need to eliminate the securitization factors of when Fannie or Freddie bought the existing mortgage for it to be eligible for a HARP refi.  I recently had a client where it showed on Fannie Mae’s site that he indeed has a mortgage owned by Fannie Mae–it was not until we received an error message trying to underwrite it through DU (the automated underwriting system) that we called Fannie Mae to discover that the loan had been securitized (purchased by Fannie Mae) one day too late to qualify (March 1, 2009).  This person’s loan closed in December 2008, was sold the the bank and then took months for Fannie Mae to purchase.  This means this upside-down home owner does not qualify to reduce his payment by $250 per month.  Imagine what the $250 a month would do for him and/or the economy.  It gives him some probably needed monthly financial wiggle room and he just might spend a little more which helps our economy too.  (Loans need to be purchased/securitized by Freddie Mac no later than May 31, 2009 to qualify).

These are just a few thoughts that have been a bee in my bonnet… or worse!   Don’t get me started on home owners with existing mortgages that have private mortgage insurance hitting a brick wall when trying to do a HARP refi (most pmi companies are not cooperating) or not being able to include second mortgages (even “purchase money”) in a HARP refi.   Or how FHA insured loans will soon be more expensive for borrowers seeking to refinance or purchase with the increase of the annual mortgage insurance premium.

Please contact your elected officials in Congress if you have had issues with obtaining financing…they are making originating loans tougher and tougher as I write this post. 

I’m afraid it’s going to get worse before it will get better.  Many people who need help and who would qualify for the refinance with exception of the appraisal…are not able to get it.  Many don’t want to risk the cost of the apprasial (around $500) to attempt a refinance in these economic times.

Filed Under: Rant, Refinance Tagged With: , , ,
« Previous Page
Next Page »