Auburn, Washington Homeowner Asks: Will Obama’s Plan Help Me?

February 19, 2009 by Leave a Comment

They bought their home with 10% down payment back in 2007 using two mortgages which only required interest only payments for the first 10 years.  They opted for this route because they wanted to buy this home before their other property sold (buying simultaneous)…the other property never sold and is now a rental.  This morning I received an email asking:

"Please advise how the stimulus package can help me.  I would like to lower my monthly mortgage payments and not have interest only loans."

March 4, 2009 is when we are suppose to have the details on how President Obama's plan will work.  From The White House Blog:

I have both a first and a second mortgage.  Do I still qualify to refinance under the Homeowner Affordability and Stability Plan?

As long as the amount due on the first mortgage is less than 105% of the value of the property, borrowers with more than one mortgage may be eligible to refinance under the Homeowner Affordability and Stability Plan.  Your eligibility will depend, in part, on agreement by the lender that has your second mortgage to remain in a second position, and on your ability to meet the new payment terms on the first mortgage. 

Will refinancing lower my payments?

The objective of the Homeowner Affordability and Stability Plan is to provide creditworthy borrowers who have shown a commitment to paying their mortgage with affordable payments that are sustainable for the life of the loan.  Borrowers whose mortgage interest rates are much higher than the current market rate should see an immediate reduction in their payments.  Borrowers who are paying interest only, or who have a low introductory rate that will increase in the future, may not see their current payment go down if they refinance to a fixed rate.  These borrowers, however, could save a great deal over the life of the loan….

I am not an appraiser…when I look at what's recently sold in this homeowner's neighborhood, it looks like home values are down roughly 15% from when they bought two years ago.  Appraised values are based on what other homes in your neighborhood have sold for in the past few months.  Since they put 10% down two years ago with interest only products, they are underwater on their mortgages.

The first and second mortgage combined are around the 105% loan to value…but it sounds like this will be up to who ever the mortgage servicers are for both the first and second mortgages and if the new program will be limited to true conforming limits of $417,000 or if it will include those areas that qualify for the conforming high balance limits ($506,000 for King, Pierce and Snohomish counties).  At least they have a 8 years remaining on the interest only period of the mortgage.

There are still more questions than answers at this stage.  This homeowner's investment property will not be included in this plan.

I'm hopeful that the new plan to be revealed in early March will help this family.  At this point, they cannot refinance without it.   

Filed Under: Appraisals, Economy, Refinance

The FHA Streamlined Refinance

February 5, 2009 by 3 Comments

EDITORS NOTE August 23, 2009:  With any mortgage information that you find on the internet, whether it's from a blog or website, be mindful that guidelines are changing constantly in this current climate and information may not be totally up-to-date. 

September 29, 2009:  HUD has issued revisions to FHA Streamlined refi's which will be effective mid-November.

If your existing mortgage is FHA, you may qualify for a streamline refinance to take advantage of today's lower rates.  "Streamline" means that there is less documentation involved for the borrower which allows the transaction to close quicker than a typical refinance.  With a FHA streamline refi there is:

  • no income documentation or verification. UPDATE 8/23/2009:  Many lenders are now requiring proof of income/employment to show ability to make the mortgage payment.
  • no minimum credit score requirements. 620 minimum credit score required by most lenders. UPDATE 8/23/2009: Many lenders are now requiring a 660 minimum credit score. 
  • no verification or documentation of assets (like bank statements, retirement accounts, etc).
  • an appraisal may not be required.   When an appraisal is used for an FHA Streamline, the loan to value is limited to 97.75% (this is also true for refinancing a non-FHA loan to a FHA insured loan).  When an appraisal is not used, there is no "loan to value" ratio and closing costs may not be financed. (Updated).
  • upfront mortgage insurance is reduced to 1.5% of the base loan amount (instead of 1.75% for a non-streamline FHA refi) ). 2.25% (and proposed to be changed soon). 
  • cash back to the borrower is limited to $500. 

The following are some of the requirements for a home owner to qualify for a FHA refinance:

  • the existing mortgage that is being paid off must be an FHA insured mortgage.
  • the borrower may not have been late (30 days or more) on their mortgage payment in the past 12 months.
  • the new loan amount is subject to FHA loan limits.  Note: if you have an FHA mortgage that was acquired in 2008 where your geographical loan limit was higher than the current 2009 limit, you may still qualify for the streamline refi as long as your new loan amount does not exceed the original loan amount and the loan to value is 97.75% or less.

If a property has been converted to an investment property with a FHA insured underlying mortgage, it may also qualify for a FHA Streamline refi with no appraisal and only for the outstanding principal balance.

Last but no least, make sure that your Mortgage Originator works for a company who is HUD approved.  Some loan originators are not and may try to illegally broker your loan to a company that is.  I have been helping Washington State families with FHA financing since 2000 and Mortgage Master is a Direct Endorsed HUD approved lender with our own "in-house" FHA underwriters.  They've been helping home owners in the Pacific Northwest since 1976!

If you're interested in obtaining a FHA Streamline refinance for your home located in the State of Washington, please email me with the following information: 

  • Property address (estimated property taxes and home owners insurance is a plus).
  • Original FHA mortgage balance from when the mortgage was obtained.
  • Original amount of UFMIP (upfront mortgage insurance premium) and when you obtained the FHA insured loan.
  • Current FHA mortgage balance.
  • Estimated home value (appraisal may not be required).
Filed Under: FHA, Refinance Tagged With:

Reviewing an ARM Note for a Neighbor in West Seattle

January 27, 2009 by Leave a Comment

I've been working with a home owner in West Seattle who has an adjustable rate mortgage that she obtained almost five years ago from a big "local" bank.   She contacted me to obtain rate quotes for refinance because her ARM is set to adjust soon.   Here's what a review of her Note reveals:

The Note rate is 4.125% for five years with the first adjustment coming up on May 1, 2009.   The index is based on the 1 Year Treasury (CMT) and her margin is 2.75%. 

If her ARM were set to adjust today, her new rate would be based on adding the margin of 2.75% to the 1 Year Treasury rate of 0.49% rounded to the nearest 0.125% = 3.25%.  (Indices are changing dramatically in our current climate–it's hard to say where the CMT will be on May 2009).

This rate is amortized based on the remaining term of 25 years and every May her ARM will continue to adjust based on where the current index is (1 year Treasury – CMT) plus the margin of 2.75%.   This is also limited to specific caps that her Note features of 2% annually and a lifetime ceiling of 10.125%. 

Let's assume her rate adjust to 3.25% in May 2009.  The highest her rate could be on May 2010 is 5.25% and the lowest is 2.75% (the lowest the rate may ever be is limited to the margin of 2.75%).  If rates continuing rising, the worse case scenario would look like this:  May 2011 = 7.25%; May 2012 = 9.25%; May 2013 = 10.125% (because of the lifetime cap of 10.125%).

If worse case scenario, the CMT climbs dramatically over the next few months, the highest her rate could be is 6.125% based on her 2% rate caps.

Should this home owner refinance with her adjustment date looming near?  It really depends on what her personal financial plans are and if she can tolerate having her rate change annually.  Her main risk is where rates may be in the future.   The choice is hers.

What would you do?

Are you a Seattle area home owner with an ARM?  I'm happy to review your Note for you–no refinance required.

 

Filed Under: Adjustable Rate Mortgage (ARM), Refinance

What to do if you missed out on refinancing with last week’s rates

January 22, 2009 by 2 Comments

Tuesday, following the holiday, rates popped up about a half point to rate.   Last week, the very same people I was quoting mid-to-high-4’s to who opted not to lock yet, now are receiving updates with rates in the low 5’s…much to their surprise.  Why didn’t they lock?  Because some want just 0.125% better in rate and some want the rate priced with zero points (which is a much taller order than 0.125% improvement in rate these days with rebate pricing almost non-existent).

[Read more…]

Filed Under: Interest Rates, Refinance

Condo’s Getting Spanked by Fannie

January 12, 2009 by 2 Comments

iStock_000061440694_MediumFannie Mae’s latest hits to rate will be implemented by lenders any day.  Condominiums are really getting spanked with a 0.75% add to fee if there is less than 25% home equity in the property.  This will apply to both purchases and refinances for any mortgage except those amortized 15 years or less.

 

If you are considering refinancing your condo, contact your local mortgage professional right away (I can help you if you’re located in Washington state)…if you’re in the process of buying a condo and are “floating” your interest rate, I highly recommend considering locking.

PS:  Cash-out refinances are also getting whammo’d by Fannie.  Don’t wait!

Filed Under: Condos, Fannie, Freddie and FHFA, Mortgage, Refinance, Residential Purchase Tagged With: ,

How Much Reserves are Required When Refinancing?

January 8, 2009 by 5 Comments

I had a great question yesterday from a potential client who asked how come my Good Faith Estimate was showing more reserves being required than the other lenders he was comparing me to. [Read more…]

Filed Under: Good Faith Estimate, Refinance Tagged With: , , , ,

Should You Wait for 4.5% Mortgage Rates to Refi?

December 8, 2008 by 6 Comments

Personally, I would not wait for the proposed, much talked about 4.5% mortgage interest rate.  Check out the last word from this Sunday's Seattle PI's real estate section: "4.5% mortgage rate seen as possible".

For the most part, mortgage interest rates are determined by supply and demand: they are bonds (mortgage backed securities) that are traded.  The Treasury has been discussing buying mortgage backed securities (MBS) from Fannie Mae and Freddie Mac which should lower rates.  Mortgage interest rates are not set or directly controlled such as the Fed Funds rate where the Fed decides exactly how much the rate will adjust, if at all.  Another factor to consider, if this becomes more than the current speculation, is that the talk has just been about purchasing Fannie and Freddie MBS.  Those who would potentially benefit from the future lower rate would need to qualify for a conventional mortgage.

What would I do if I were considering a refinance?

  1. Contact a qualified mortgage professional who has the ability to float down or renegotiate your rate should they dramatically drop after your rate is locked.

  2. Consider pricing the mortgage as a no-cost refinance so that should rates drop low enough, you can refinance again should it be justified.   

  3. Have a plan.  Review your goals with your mortgage professional to make sure refinance makes sense.  If you're not planning on retaining your mortgage long enough to break even, it may not make sense to proceed with a refi.  Focusing just on the rate and not factoring in closing costs and break-even periods can be costly.

  4. Get ready.  Apply early so you're in the best position to lock.  If today's current rates do not pencil out, determine what rate will.  Some mortgage professionals will agree to a "forward lock" in the event your target rate (or better) becomes available.

If a refi boom happens, be prepared for the transaction to take longer.  Fact is, there are now fewer people in this industry from Loan Originators, Processors, Underwriters and Escrow Officers to handle the increased volumes. 

Questions?  I'm licensed to provide mortgage in Washington State.  Contact me.

Related posts:

Get Ready, Get Set: Refi!

Declining Home Values: Good for Buyers, Bad for Refi's

Why Your Loan Originator Needs a Complete Loan Application Before Locking

Filed Under: Refinance

Rates on Bank Websites

October 23, 2008 by Leave a Comment
I received this email from a client yesterday.  Since it’s a common question, I thought I’d share it with you:
“I just noticed on the [big bank’s] website that the conforming mortgage rate with 1 point is now 5.75.
Do you know what type of rate it would be for conforming jumbo without paying a point?
How much do you anticipate my closing costs will be if I decide to refinance?   I know [big bank] has a new program now where they pay for all closing costs besides interim interest and taxes when you refinance.   Do you know if any other banks offer the same program?”
Filed Under: Interest Rates, Refinance Tagged With: , ,
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