HARP 2.0 Questions to ask your Mortgage Originator

HARP 2.0 (Home Affordable Refi Program) was revamped late last year to remove loan to value restrictions allowing more underwater home owners to refinance. So you may be wondering, why should you need to ask your mortgage originator if they have any loan to value restrictions with the HARP 2 program. In two words: UNDERWRITING OVERLAYS.

HARP 2.0 overlays are underwriting guidelines that are in addition to Fannie Mae or Freddie Mac’s program guidelines. Underwriting overlays are mandated by the bank and/or lender.  For example, as a correspondent lender, I work with several big banks, wholesale lenders and I can broker loans too. Currently most of the banks I work with have underwriting overlays that limit my maximum loan to value with HARP loans anywhere from 95 to 105% depending on the bank and scenario. Thankfully I also work with lenders who offer unlimited loan to values with no underwriting overlays for HARP 2.0, as the program was intended to be. 

Before you submit a loan application for HARP 2.0, ask the mortgage originator what is the max loan to value they can lend on.  If they are limited to 105% and your loan to value exceeds 105%, find another mortgage originator. HARP guidelines have an 105% ltv limit on adjustable rate mortgages and loans with a term greater than 30 years.

If you have PMI or LPMI, ask your mortgage originator if they are accepting transferred pmi BEFORE you start your application. Many lenders are not accepting HARP loans with existing pmi or lpmi (lender paid mortgage insurance). If you’ve been told this by your bank, seek another lender.

There are some scenarios where because of certain “credit enhancements” a loan may not be available for a HARP 2.0 – it’s more the exception than the norm.  And I’m hoping when (if) HARP 3.0 becomes available, those loans are allowed to take advantage of this program.

If your LO has told you that an appraisal is required, get a second opinion. Appraisal waivers are not automatically provided on all HARP 2.0 loans. It is not determined until your loan is ran through Fannie Mae or Freddie Mac’s automated underwriting systems (DU or LP) whether or not an appraisal is required. Sometimes the smallest detail may impact whether or not an appraisal waiver is granted, such as how your address is entered into the AUS. You many not need to spend money on the appraisal and it’s possible that you may receive an appraisal waiver at a later date as the valuations that Fannie and Freddie use change.

Because of the increased refi volumes created by expanded guidelines with HARP 2.0 and the reduced mortgage insurance now available for some FHA streamlined refi’s, banks and lenders are “cherry picking” what refinances they want. One way of doing this is by creating underwriting overlays. Due to these increased volumes, large banks and credit unions have hired on loan originators (or “mortgage tellers”) who may lack experience in the mortgage industry. (Remember, LO’s who work for banks or credit unions are not required to be licensed per the SAFE Act). They’re simply hired to fill out an application and are not savvy to actual guidelines.

I’ve been helping home owners who have been told by a mortgage originator that because they have pmi or their loan to value is 108%, that they don’t qualify for HARP 2.0 when actually, they do.  I’m not sure if LO’s don’t read Fannie/Freddie guidelines or if because they cannot offer it, they prefer to portray certain features are not available when what they should do is convey that they do not have access to those features (such as ltv’s over 105%), however another lender may.

If you’re considering refinancing or buying a home located anywhere in Washington, I’m happy to help you.  Click here if you would like me to provide you with a mortgage rate quote.

EDITORS NOTE: Since this was published, most of the banks we work with as a correspondent have pulled back their LTV guidelines to 105%. Wholesale lenders where we can broker have also made changes to guidelines or policies or have stopped accepting applications due to extreme volumes. Hopefully Congress will pass HARP 3.0 to help the Home Affordable Refi become more available. 

HARP 2 and Appraisal Waivers

When the expanded guidelines of the Home Affordable Refinance Program (aka HARP 2) were released late last year, they announced that loan to value (LTV) restrictions were being removed. It all sounds very simple however, no big surprise here, there’s a little more to it.

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The Cash-In Refi

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.

The Wild Cards of Refinancing

Jokers In years past, refinancing was a fairly simple task.  Homeowners would contact me wanting to restructure their mortgage to either reduce their monthly payments or perhaps to take equity to improve their home or pay off debts.  Back then, a 680 credit score was considered decent (anything over 720 was great) and people had a good idea of what their homes would appraise for and if they didn’t, I could usually determine a value by obtaining sales comps from a title insurance company.  It’s just not so anymore.  Refinancing can be trickier because there are “wild cards” involved that may not be revealed until you are deeper into the transaction.

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When an appraisal comes in low

Luckily this hasn’t happened often to me…last week we closed a transaction where the appraised value came in lower than the agreed sales price on the purchase and sale agreement.   Ugh!

The property is a nice home in south King County that was originally listed for $275,000. Shortly after going on the market, a bidding war commences and my client “wins” the home after it is bid up to $300,000 which includes building in $6,000 of closing costs to be paid from the seller.  My client is putting zero down into the transaction (100% loan to value).

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