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: , , ,

An Awkward Time of Year for Closing Refinances: 1st Half Taxes Due

April 11, 2009 by 3 Comments

On April 30th, first half of real estate taxes are due for properties located in Washington State.   For those homeowners who are refinancing with a closing in April to mid-May, this can cause an inconvenience.   Lenders, the title insurance company and the escrow company need evidence from the County that the taxes for the first half of the year have indeed been paid. 

Unless your reserve account is waived, taxes are collected on a monthly basis in your mortgage payment and then paid when they are due: first half is due by April 30th and the second half is due by October 31st.  

The County typically has a lag time before the processed payments appear once they receive the payment from the mortgage servicer.  King County’s website states:

“It may take up to two weeks for your property tax payment to be reflected in our records after receiving your payment”.

For refinances closing before it is reflected in County records that taxes have been paid; they have a few options:

  • Pay six months of taxes at closing towards your payoff.  The mortgage servicer will refund the balance (overage) a few weeks after closing with their existing reserve account balance.
  • Pay six months taxes at closing; the escrow company might hold funds for the 6 months taxes as an escrow hold-back and refund them to you once County records show the taxes are paid.
  • Delay the closing until the taxes show as being paid per County records (this could cause an extension fee).

Folks closing their refi’s in October to mid-November will be in the same boat with their property taxes. 

Filed Under: Refinance 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: , , , ,

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: , ,

Second Mortgage Subordinations May Cause Huge Delays with Refi’s

March 11, 2008 by 13 Comments

If you have a second mortgage (home equity line or fixed term), and you are not going to pay it off during a refinance; it needs to be “subordinated”.   This is because of lien position with your mortgages…who gets to be first.   Lien position is determined by when a document (such as a Deed of Trust) is recorded at the county.   If you have two mortgages and are only refinancing the first mortgage, the second mortgage will need to be “subordinated”.  The subordination agreement is a recorded document with the second mortgage lien holder and the borrower that the second mortgage will go back into second position after the new first mortgage is recorded.   If this document was not recorded, than the old second mortgage would be in “first lien position” and the new refinance would be in “second lien position”.  This boils down to which mortgage has more rights in the event of a foreclosure…everyone wants to be first as the further down the line you are, the higher the odds are that the lien may not be cashed out (again, in a worse case scenario). 

Prior to our current mortgage crisis, a subordination agreement typically was not an issue.  We send a request for subordination along with a copy of the appraisal from the refi.  The second mortgage lien holder would review the request, consider the amount of equity remaining in the property and 9 times out of 10, agree.  This process would take a couple days.

With more banks being concerned about depreciating or soft values, they are now taking much much longer to consider if they will all allow a subordination to take place. In fact, I recently closed a transaction where the bank took over 10 business days (this eats away at your lock) for a borrower with 800 credit scores and a loan to value of just over 50% to subordinate a HELOC that with a zero balance.    An Account Manager from a bank that does a large amount of second mortgage recently sent out this memo:

“UPDATE on SUBORDINATIONS:   Please get your files in early… the subordination dept is running approx 20 business days.  I do not have any contacts for rushes etc.  They are trying to work date sensitive deals, but they have not been able to get caught up…”

Folks…20 business days is a month! 

If you are refinancing and have a second mortgage or HELOC that will not be included in the refinance, make sure your loan originator is aware and that they know how long subordinations are taking so they can lock your rate in appropriately.   A 30 day lock with a 20 day subordination is not going to cut it.  You’ll be looking at having to deal with a lock extension.

If your loan to value is higher, there is a possibility that the subordination may be declined.  Discuss this with your loan originator upfront.  Lenders are looking at any way to protect themselves from additional risk during these historic times.  If your loan amount qualifies and you have enough equity, you just may have to include that second mortgage in your refinance.

 

Filed Under: Home Equity Loans & Second Mortgages, Refinance Tagged With: , ,

Skip Two Mortgage Payments when You Refi!

February 24, 2008 by 7 Comments

Skipping

The promise of not having to write a check for your mortgage payment for two months seems so tempting that many home owners chomp on the bit when a Loan Originator dangles that bait to lure in a refi candidate.  The truth is you’re not skipping anything.

Typically when your close on a mortgage, your first mortgage payment is the following month after 30 days have passed.   So for example, if your mortgage was closing on February 22, your first mortgage payment is due on April 1.  Although it seems like you’re “skipping” a month, what’s happening here is that the mortgage interest on the new loan is prorated from the day you close.  Based on this scenario, your interest is starting on February 22 and is prorated until the 28 (or 29 in a leap year such as we have this year).  The 6 extra days of interest is charged to you at closing under the prorated interest on your HUD-1 Settlement Statement.  Mortgage payments have 30 days of interest in arrears because of this and this is why your payoff is always higher than your monthly statements by about one mortgage payment (30 days of interest).

In order to do the “Skip Two Mortgage Payments” tango, your refinance needs to close as close to the 15th of the calendar month as possible and you, dear home owner, do not make your mortgage for that month.   So using our same example, if you closed your mortgage on February 15 and do not make a mortgage payment for February, your new mortgage payment is still not due until April 1.  You will have 15 days of prorated interest due at closing (half of a mortgage payment).   Did you skip anything?  No.  You only saved writing a check.  The interest is still there and nothing is free. 

When home owners try “skipping” payments, they also risk late fees being assessed by the bank who is being paid off.  If they do not receive the payment by the 15th, the borrower will have a late fee.  Even if the escrow company wires the payoffs to the underlying lender, there’s no guarantee they will receive it in time. 

Click here for a refi rate quote for your home located in Washington.

I was helping a couple with a potential refinance and they were very interested in skipping two month’s payments.  This would have been especially costly for them as we were paying off a FHA mortgage.   FHA mortgages do not prorate the interest when they are being paid off.  It only makes sense whenever possible to close them at the end of a calendar month so that the home owner isn’t paying double interest.   If they would have closed on February 15, they would have felt like they were “skipping” however their mortgage payoff would have had interest through the end of February AND they would have paid 15 days of prorated interest on their new mortgage. 

Loan Originators who use “skip two months payments” are hoping to skip all the way to the bank.  In fact the LO who was trying to lure the couple I helped last month was charging them 3 points for the same rate that I was offering priced with 1 point.  This lender is not from Washington State and has to rely on deceptive mailers in order to get new business…I’m sure it’s because no one who has obtained from them would return or refer their friends and family to them.

There’s nothing wrong with scheduling your closing so you have the illusion of skipping two payments, just know going in what it takes to make this happen and what your risks are (late fees).

Click here for a refi rate quote for your home located in Washington.

Filed Under: FHA, Predatory Lending, Refinance Tagged With: ,

Would You Like Your Mortgage Blended, Shaken or Stirred?

March 27, 2007 by 4 Comments

Mpj028975400001Many home owners have two mortgages on their properties.  A first mortgage and a second mortgage that may either be fixed or a home equity line of credit.    Do you know what your effective rate is?   Basically, this is if you factor in what your paying on both mortgages, and then figured out what your interest rate is on your payment.

Here’s how to determine what your “blended rate” is:

[Read more…]

Filed Under: Interest Rates, Mortgage, Refinance Tagged With: , , ,
« Previous Page