Tuesday, October 25, 2011

New Home Affordable Refinance Program (HARP II)

Yesterday, Oct 24, 2011, President Obama announced changes to the Making Home Affordable Refinance Program (HARP) so that a person can refinance a first mortgage that is upside-down.

That mortgage must be owned by Fannie Mae or Freddie Mac on or before May 31,2009.

The changes announced yesterday also extend the program to the end of 2013, and will allow a refinance of a first mortgage with no cap on the loan-to-value (LTV) ratio.

Another important enhancement is the elimination of certain risk-based fees for borrowers who choose a shorter term (see examples below) and lowering fees for other borrowers.

No lenders are offering the program yet, although some major lenders have stated they are working on it’s release.

The requirements released to date are as follows:

1. 1st mortgage owned by Fannie Mae or Freddie Mac

2. No late mortgage payments within the previous 6 months

3. No more than 1 late mortgage payment within the past 12 months

4. 2nd mortgages must agree to go back in 2nd position

5. The loan cannot have been refinanced previously under HARP unless it was between March-May of 2009.

6. Condominiums continue to be eligible under the program.

Lenders are expected to receive guidelines, including implementation dates by November 15, 2011.

Some of the enhancements may be available as early as December 1, 2011,

However, availability of the loan for LTV's greater than 125 is not expected until after December 31, 2011.

The FHFA announcement can be found here:


The program is only one of many refinancing options available to homeowners. It is unique in that it enables borrowers who owe more than the home is worth to take advantage of low interest rates and other refinancing benefits.


Assume a homeowner currently has a mortgage on which he or she owes $200,000 and
has an interest rate of 6.5 percent – a monthly payment of $1264. If the house is worth $160,000, the homeowner has a current loan-to-value (LTV) ratio of 125 percent.

  • If this borrower refinanced into a 30-year fixed-rate mortgage with an interest rate of 4.5 percent, the monthly payment would decline to $1013. But, by refinancing into a 30-year loan, the borrower’s loan balance will not reach $160,000 for ten full years.

  • If the borrower chose a 20-year loan term at a rate of 4.25 percent (mortgage rates tend to be less for shorter term mortgages), the monthly payment would be $1238 ($26 less than the borrower currently pays) and the borrower’s loan balance would reach $160,000 in 5.5 years.

  • If this same borrower refinanced into a 15 year mortgage, assuming an interest rate of 3.75 percent, the monthly payment would be $1454 ($190 more than the current payment), but the loan balance would be below $160,000 in a bit more than 3.5 years.

    *These examples are purely illustrative and are not meant to represent interest rates borrowers should expect to pay. They do show that some HARP-eligible borrowers, depending on their circumstances and priorities, may benefit from a shorter term mortgage.
  • Friday, October 21, 2011

    Are FHA Mortgage Loans Assumable?

    You can assume an existing FHA-insured loan, or, if you are the one deciding to sell, allow a buyer to assume yours. Assuming a loan can be very beneficial, since the process is streamlined and less expensive compared to that for a new loan. You must demonstrate that you have enough income to support the mortgage loan. In this way, qualifying to assume a loan is similar to the qualification requirements for a new mortgage loan. After closing, you will then be responsible for an annual premium - paid monthly - if your mortgage is over 15 years or if you have a 15-year loan with an LTV greater than 90%.

    Here is how assumable FHA loans benefit the buyer:

    The benefits are two fold. The buyer may get an interest rate that is much lower than the current interest rate they could get from a bank AND they have an accelerated pay off schedule because there are less years remaining on the note!

    The FHA mortgage is one of the most expensive when it comes to closing costs, although the costs can be financed. To counter that cost, it helps to remember that your FHA mortgage is assumable. When you sell your property you will have an edge over your competition because of the assumable financing you can offer.

    The value of assumability is as high as it is ever likely to be because of the broad consensus that interest rates in future years will be higher than they are now.

    Loans insured by the FHA are assumable; conventional loans, with a few exceptions, are not. That means that a home buyer who finances the purchase with an FHA-insured loan and who sells the house later, when interest rates are higher, will be able to offer a potential buyer the right to assume his low-rate FHA loan.

    After approval of the buyer by the FHA, the buyer would assume all the obligations of the mortgage upon the sale of the property, and the seller would be relieved of liability, provided the loan being assumed was originated after December 14, 1989. It will be just as if the loan had been made to the buyer.