Pam Marron Home Lending

HARP 2.0

April 1, 2010 by · Leave a Comment 

HARP 2.0 Refinance Program

There has been a lot of media attention given to President Obama’s revamped HARP refinance program.  Both Fannie Mae and Freddie Mac have released their updated guidelines for these loans.  Here are the highlights of President Obama’s enhanced HARP program.  Please keep in mind that ALL of the criteria must be met in order to be eligible.

  • Your loan has to have been sold to Fannie Mae or Freddie Mac prior to June 1, 2009 to be eligible.  If you closed on your current loan in May of 2009 or after, your loan may not  have made this cut off.
  • If the loan originally had a down payment of less than 20% and PMI insurance, you will be required to retain PMI insurance as part of the new loan unless you can demonstrate that you now have 20% equity based on a current appraisal.
  • A current appraisal of your home may be required as part of the approval process.  In some cases, the need for an appraisal is eliminated.  The appraisal requirements will vary from borrower to borrower.
  • As part of President Obama’s HARP program, homeowners with substantial decreases in value can still take advantage of this program. This is true even if you owe more than what your home is worth.
  • If you are currently making payments to your mortgage holder, there is generally no limit to the percentage of the home that can be financed.  Example, if you owe $200,000 and your home appraises for $100,000 your loan is essentially 200% of the homes current value.  Under the enhanced program you are still eligible. For clients who refinance with a “new servicer”, this option will be available in March 2012 if your current loan exceeds 125% of your homes current appraised value. All lenders are awaiting final rules to be published in March 2012.
  • In some cases, borrowers with new loans that are less than 80% of the homes current value that have a home equity loan where the current mortgage is sold to Freddie Mac may have a limit on the amount of the home that can be financed in total
  • Borrowers CAN NOT refinance a second mortgage as part of the first mortgage.  The second mortgage holder must be willing to go back into a second lien position in order for a borrower to refinance.

I will continue to monitor all sources of information on this program and will keep my website posted with the latest information at www.CloseWithPam.com.  If you have any questions or concerns please contact me at 727-375-8986 or email pmarron@tampabay.rr.com.

Want to Stay? Equity Solutions

April 1, 2010 by · Leave a Comment 

3 SOLUTIONS for Underwater Homeowners to Gain Back Equity NOW: RH Reward,  HARP 2.0 (for FNMA/FHLMC loans) and NEW Obama Plan (for non-FNMA/FHLMC loans) 

1) RH Reward: Responsible Homeowner Reward

Benefit: A solution to stay… “If I stay current on my payment, the bank will return a portion of my lost equity.”

See Video: Mortgage Default Solution - RHR

Loan Value Group (LVG), a private New Jersey investment firm, came up with the Responsible Homeowner Reward (RH Reward) Program in 2010. This program works through banks and investors, giving back a small percentage of equity to underwater homeowners who continue to make their payments on time for the next 3 to 5 years.

Here’s how it works. Borrowers pay nothing. They sign up with the program, promising to keep current on their mortgages for a certain period, generally 36 to 60 months, worked out with the participating lender/investor.

After that period, the borrower will be paid anywhere from 10 to 30% of the loan principal, depending on the contract with their lender/investor. The lender/investor pays LVG a servicing fee, and LVG pays the borrowers. Again, the borrowers pay nothing for this equity bonus.

To date, 38 states have borrowers enrolled in the LVG program, totaling approximately 10,000, according to LVG. The largest numbers of borrowers are from the hardest hit states, California, Florida, Arizona, Nevada and Michigan.

All of those states have achieved greater than 50% reduction in default rates than respective control group.

By targeting borrowers with the most negative equity and therefore at the greatest risk of strategic default, lenders and investors are cutting their losses by keeping the borrowers current. The lender/investor stands to lose more in a foreclosure.

Frank Pallotta, Managing Partner of Loan Value Group and developer of the Responsible Homeowner Reward (RHR)

Fact: It is proven that homeowners respond positively when given a promise of future help.

Banks, are you listening?

Problem: There is not enough attention being paid to this idea that is less costly than the loss incurred when homeowners short sale or foreclose!

 

2) HARP 2.0 (Home Affordable Refinance Program)

This is a government refinance program that will put responsible borrowers in a better position starting March 2012 by:

  1. Reducing monthly principal and interest payments
  2. Reducing interest rate
  3. Reducing amortization period
  4. Moving from a more risky loan (interest only or short term ARM) to a stable product

The HARP program provides for:

  1. Manual underwriting by current servicer
  2. Automated approval/underwriting by any lender
  3. Expanded approvals and no max. ratios with automated underwriting
  4. Unlimited LTV! Solution for borrowers with LTVs above 80% who currently cannot refinance due to MI restrictions
  5. Can be owner occupied, 2nd home or investment property
  6. Can combine with subordinate financing but must be re-subordinated
  7. Principal reduction of loan can be made
  8. Closing costs can be included in loan

Restrictions:

  1. Must be FNMA or FHLMC loan (to determine is you have an acceptable FNMA or FHLMC loan: www.freddiemac.com/my mortgage or http://www.fanniemae.com/loanlookup/)
  2. Specific times loan needs to have been originated
  3. Manual underwriting guides apply: min. credit score of 620, max. DTI of 45%, verif. of all income sources/amounts, verif. of assets if applied.
  4. Program not live for lenders until 3/12.

What’s the difference between HARP and HAMP (Home Affordable Modification Program)?

  • HARP is a refinance to a lower rate or shorter term, with capped closing costs that can be rolled into the loan, increasing the principal balance of the loan.
  • HAMP is a modification, where the payment is temporarily reduced to a lower rate for a period of 5 yrs., then escalates 1%/yr for 3 yrs after, with a capped rate in the 8th yr. The difference not paid of the note rate is added to the back of the loan, increasing the principal balance by this amount.

 3) NEW Obama Plan:

Go to  FACT SHET: President Obama’s Plan to Help Responsible Homeowners and Heal the Housing Market (Not yet approved by Congress…. needs our support!)

1. Broad Based Refinancing Plan

Millions of homeowners who are current on their mortgages and could benefit from today’s low interest rates face substantial barriers to refinancing through no fault of their own. Sometimes homeowners with good credit and clean payment histories are rejected because their mortgages are underwater. In other cases, they are rejected because the banks are worried that they will be left taking losses, even where Fannie Mae or Freddie Mac insure these new mortgages.  In the end, these responsible homeowners are stuck paying higher interest rates, costing them thousands of dollars a year.

To address this challenge, the President worked with housing regulators this fall to take action without Congress to make millions of Americans eligible for lower interest rates. However, there are still millions of responsible Americans who continue to face steep barriers to low-cost, streamlined refinancing. So the President is now calling on Congress to open up opportunities to refinancing for responsible borrowers who are current on their payments.

Under the proposal, borrowers with loans insured by Fannie Mae or Freddie Mac (i.e. GSE-insured loans) will have access to streamlined refinancing through the GSEs. Borrowers with standard non-GSE loans will have access to refinancing through a new program run through the FHA. For responsible borrowers, there will be no more barriers and no more excuses.

Key components of the President’s plan include:

• Providing Non-GSE Borrowers Access to Simple, Low-Cost Refinancing: President Obama is calling on Congress to pass legislation to establish a streamlined refinancing program. The refinancing program will be open to all non-GSE borrowers with standard (non-jumbo) loans who have been keeping up with their mortgage payments. The program will be operated through the FHA.

Simple and straightforward eligibility criteria: Any borrower with a loan that is not currently guaranteed by the GSEs can qualify if they meet the following criteria:

• They are current on their mortgage: Borrowers will need to have been current on their loan for the past 6 months and have missed no more than one payment in the 6 months prior.
• They meet a minimum credit score. Borrowers must have a current FICO score of 580 to be eligible. Approximately 9 in 10 borrowers have a credit score adequate to meet that requirement. 
• They have a loan that is no larger than the current FHA conforming loan limits in their area: Currently, FHA limits vary geographically with the median area home price – set at $271,050 in lowest cost areas and as high as $729,750 in the highest cost areas
• The loan they are refinancing is for a single family, owner-occupied principal residence.  This will ensure that the program is focused on responsible homeowners trying to stay in their homes.

Streamlined application process: Borrowers will apply through a streamlined process designed to make it simpler and less expensive for borrowers and lenders to refinance. Borrowers will not be required to submit a new appraisal or tax return. To determine a borrower’s eligibility, a lender need only confirm that the borrower is employed. (Those who are not employed may still be eligible if they meet the other requirements and present limited credit risk. However, a lender will need to perform a full underwriting of these borrowers to determine whether they are a good fit for the program.)

Program parameters to reduce program cost: The President’s plan includes additional steps to reduce program costs, including:

• Establishing loan-to-value limits for these loans. The Administration will work with Congress to establish risk-mitigation measures which could include requiring lenders interested in refinancing deeply underwater loans (e.g. greater than 140 LTV) to write down the balance of these loans before they qualify. This would reduce the risk associated with the program and relieve the strain of negative equity on the borrower.
• Creating a separate fund for new streamlined refinancing program. This will help the FHA better track and manage the risk involved and ensure that it has no effect on the operation of the existing Mutual Mortgage Insurance (MMI) fund.

EXAMPLE: How Refinancing Can Benefit a Borrower With a Non-GSE Loan

 A borrower has a non-GSE mortgage originated in 2005 with a 6 percent rate and an initial balance of $300,000 – resulting in monthly payments of about $1,800.

 The outstanding balance is now about $272,000 and the borrower’s home is now worth $225,000, leaving the borrower underwater (with a loan-to-value ratio of about 120%).

 Though the borrower has been paying his mortgage on time, he cannot refinance at today’s historically low rates.

 Under the President’s legislative plan, the borrower would be eligible to refinance into a 4.25% percent 30-year loan, which would reduce monthly payments by about $460 a month.

• Refinancing Plan Will Be Fully Paid For By a Portion of Fee on Largest Financial Institutions: The Administration estimates the cost of its refinancing plan will be in the range of $5 to $10 billion, depending on exact parameters and take-up. This cost will be fully offset by using a portion of the President’s proposed Financial Crisis Responsibility Fee, which imposes a fee on the largest financial institutions based on their size and the riskiness of their activities – ensuring that the program does not add a dime to the deficit.

• Fully Streamlining Refinancing for All GSE Borrowers: The Administration has worked with the FHFA to streamline the GSEs’ refinancing program for all responsible, current GSE borrowers. The FHFA has made important progress to-date, including eliminating the restriction on allowing deeply underwater borrowers to access refinancing, lowering fees associated with refinancing, and making it easier to access refinancing with lower closing costs.

Marron’s Recommendation:

BEST SOLUTION to Escalate Equity in Underwater Properties: RHR Coupled with HARP

Homeowners helping themselves with HARP 2.0, refinancing to SHORTER TERM at lower rate,  coupled with bank/lender provided RH Reward program that provides equity back at sale or refinance… provides MAXIMUM PRINCIPAL REDUCTION OF AN EXISTING MORTGAGE and greatest equity available in shortest term!

Banks are reluctant to do principal reductions. RHR and HARP 2.0 TOGETHER can provide an escalation of equity. HARP will be available for all lenders to use…. We need to urgently show banks and lenders the benefit of RHR!

Responsible Homeowner Reward (RH Reward)

April 1, 2010 by · Leave a Comment 

RH Reward, a private investment program available to participating banks and lenders, offers underwater homeowners equity back if they continue to pay their mortgage on time…. check out details about this innovative program at www.RHReward.com, and ask your bank to check into this opportunity!

Banks and lenders can contact:

Frank T. Pallotta

Executive Vice President | Managing Partner

Phone: 732.741.7300 | Fax: 732.741.7399 | Mobile: 201.921.8384

47 West River Road | Suite C | Rumson, NJ 07760 email: Frank@LoanValueGroup.com                        website: www.LoanValueGroup.com

Obama Refinance Plan Fact Sheet: helps non-FNMA/FHLMC underwater homeowners!

April 1, 2010 by · Leave a Comment 

Go here for the FACT SHEET on President Obama’s Plan to help Responsible Homeowners and Heal the Housing Market

Seven Things Your Agent Should Know About Your Mortgage Approval

April 1, 2010 by · Leave a Comment 

While many experienced real estate agents have a general understanding of the mortgage approval process, there are a few important details that frequently get overlooked which may cause a purchase to be delayed or denied.

New regulation, updated disclosures, appraisal guidelines, mortgage rate pricing premiums, credit score, secondary approval layering, rescission deadlines, property type, HOA insurance requirements, title and property flip rules are just a few of the daily changes that can have a serious impact on a borrower’s home loan financing.

With today’s volatile lending environment, it’s obviously important for home buyers to get a full loan approval which clearly defines all contingencies that pertain to each unique home buyer’s scenario prior to spending any time looking at new homes with an agent.

Either way, we’ve listed a few of the top things your agent should keep in mind while showing you new properties:

Caution – Agents Beware:

Property Type –

High-Rise, Condo, Town House, Single Family Residence, Dome Home or Shoe House… all have specific lending guidelines that can influence down payment, credit score and mortgage insurance requirements.

Residence Type

Need to sell one home before moving into another? Is a property considered a second home if it’s in the same city?  What if I’m buying a home for my children to live in, it is still considered an investment property?

These are just a few of several possible residence related questions that should be addressed by your agent and loan officer at the initial loan application.

Rates / Locks

Mortgage Rates are typically locked for a 30 day period, and one of the only ways to get a new rate is to switch mortgage lenders.  Rates also have certain adjustments for property / residence type, credit score and down payment which could have a big impact on monthly payments and therefore approvals.

A 1% increase in rate could literally mean the difference between an approval or denial.

Headline News / Employment

Underwriters watch the news as well.  Borrowers who work in a volatile industry during hard economic times may have to jump through a few extra hoops to prove that their employment and income is secure.

Job changes, periods of unemployment or property location in relation to the subject property are other things to consider that may cause a speed bump in the approval process.

Title / Property Flip –

A Flip is considered a property that has been purchased by an investor and quickly sold to a new buyer within a 30-90 day period.  Generally, an investor will do a little rehab work, fresh paint, landscaping…. and try to re-sell the property for a significant profit margin.

While it seems like a perfectly fair transaction, many lenders have strict guidelines in place that prevent borrowers from obtaining financing on properties that have a previous owner with less than 90 days of documented ownership.

These rules change frequently, and are specific to particular property types, so make sure your agent is aware of all the boundaries associated with your approval letter.

Homeowner’s Association Insurance

Some lenders require Condos and Town House communities to have sufficient insurance and reserves coverage pertaining to specific ratios on units that are owner occupied vs rented.

It may also take a few weeks and cost up to $300 to receive an HOA Certification, so make sure your Due-Diligence period is set accordingly in the purchase contract.

Appraisal Ordering Procedures

Appraisal ordering guidelines are changing quite frequently as regulators implement many new consumer protection laws created to prevent future foreclosure epidemics.

Unfortunately, some of the new appraisal regulations have proven to slow the home buying process down, as well as confuse lenders about the true estimate of neighborhood values.

VA, FHA and Conventional loan programs all have separate appraisal ordering policies, so make sure your agent is aware of which loan you’re approved for so that they document any anticipated delays in the purchase contract.

For example, if an appraisal takes three weeks and the average time for an approval is two weeks, then it probably isn’t smart to write a purchase contract with a four week close of escrow.

_________________________________

Related Articles – Home Buying Process:

Ten Credit Do’s and Don’ts To Bear In Mind Prior To Getting Your Mortgage Loan

April 1, 2010 by · Leave a Comment 

How can a fully approved loan get denied for funding after the borrower has signed loan docs?

Simple, the underwriter pulls an updated credit report to verify that there hasn’t been any new activity since original approval was issued, and the new findings kill the loan.

This generally won’t happen in a 30 day time-frame, but borrowers should anticipate a new credit report being pulled if the time from an original credit report to funding is more than 60 days.

Purchase transactions involving short sales or foreclosures tend to drag on for several months, so this approval / denial scenario is common.

It’s An Ugly Cycle:

  1. First-Time Home Buyer receives an approval
  2. Thinks everything is OK
  3. Makes a credit impacting decision (new car, furniture, run up credit card balance)
  4. Funder pulls new credit report and denies the loan

In the hopes of stemming the senseless slaughter of perfectly acceptable approvals, we’ve developed a “Ten credit do’s and don’ts” list to help ensure a smoother loan process.

These tips don’t encompass everything a borrower can do prior to and after the Pre-Approval process, however they’re a good representation of the things most likely to help and hurt an approval.

Ten Credit Do’s and Don’ts:

DO continue making your mortgage or rent payments

Remember, you’re trying to buy or refinance your home – one of the first things a lender looks for is responsible payment patterns on your current housing situation.

Even if you plan on closing in the middle of the month, or if you’ve already given notice, continue paying that rent until you’ve signed your final loan documents.

It’s always better to be safe than sorry.

DO stay current on all accounts

Much like the first item, the same goes for your other types of accounts (student loans, credit cards, etc).

Nothing can derail a loan approval faster than a late payment coming in the middle of the loan process.

DON’T make a major purchase (car, boat, big-screen TV, etc…)

This one gets borrowers in trouble more than any other item.

A simple tip: wait until the loan is closed before buying that new car, boat, or TV.

DON’T buy any furniture

This is similar to the previous, but deserves it’s own category as it gets many borrowers in trouble (especially First-Time Home Buyers).

Remember, you’ll have plenty of time to decorate your new home (or spend on your line of credit) AFTER the loan closes.

DON’T open a new credit card

Opening a new credit card dings your credit by adding an additional inquiry to your score, and it may change the mix of credit types within your report (i.e. credit cards, student loans, etc).

Both of these can have a negative impact on your score, and could result in a denial if things are already tight.

DON’T close any credit card accounts

The reverse of the previous item is also true. Closing accounts can have a negative impact on your score (for one – it decreases your capacity which accounts for 30% of your score).

DON’T open a new cell phone account

Cell phone companies pull your credit when you open a new account. If you’re on the border credit-wise, that inquiry could drop your score enough to impact your rate or cause a denial.

DON’T consolidate your debt onto 1 or 2 cards

We’ve already established that additional credit inquiries will hurt your score, but consolidating your credit will also diminish your capacity (the amount of credit you have available), resulting in another hit to your credit.

DON’T pay off collections

Sometimes a lender will require you to pay of a collection prior to closing your loan; other times they will not.

The best rule of thumb is to only pay off collections if absolutely necessary to ensure a loan approval. Otherwise, needlessly paying off collections could have a negative impact on your score.

Consult your loan professional prior to paying off any accounts.

DON’T take out a new loan

This goes for car loans, student loans, additional credit cards, lines of credit, and any other type of loan.

Taking out a new loan can have a negative impact on your credit, but also looks bad to underwriters and investors alike.

…..

Follow these Do’s and Don’ts for a smoother mortgage approval and funding process.

Just remember the simple tip: wait until AFTER the loan closes for any major purchases, loans, consolidations, and new accounts.

_________________________________

Related Credit / Identity Articles:

Do I Need To Sell My Home Before I Can Qualify For A New Mortgage On Another Property?

April 1, 2010 by · Leave a Comment 

Although every situation is unique, it is not uncommon for homebuyers to qualify for a mortgage on a new home while still living in their primary residence.

Perhaps you are outgrowing your current house, or have been forced to relocate due to a job transfer?  Regardless of the motivation for keeping one property while purchasing another, let’s address this question with the mortgage approval in mind:

So, Do I Have To Sell?

Yes. No. Maybe. It depends.

Welcome to the wonderful world of mortgage lending. Only in this industry can one simple question elicit four answers…and all of them may be right.

If you are in a financial position where you qualify to afford both your current residence and the proposed payment on your new house, then the simple answer is No!

Qualifying based on your Debt-to-Income Ratio is one thing, but remember to budget for the additional expenses of maintaining multiple properties. Everything from mortgage payments, increased property taxes and hazard insurance to unexpected repairs should be factored into your final decision.

What If I Rent My Current Property?

This scenario presents the “maybe” and the “it depends” answers to the question.

If you’re not quite qualified to carry both mortgages, you may have to rent the other property in order to offset the mortgage payment.

In that scenario, the lender will typically only count 75% of the monthly rent you are proposing to receive.

So if you are going to receive $1000 a month in rent and your current payment is $1500, the lender is going to factor in an additional $750 of monthly liabilities in your overall Debt-to-Income Ratios.

Another detail that can present a huge hurdle is the reserve requirement and equity ratio most lenders have. In some cases, if you are going to rent out your current home, you will need to have at least 25% equity in order to offset your payment with the proposed rent you will receive.

Without that hefty amount of equity, you will have to qualify to afford BOTH mortgage payments. You will also need some significant cash in the bank.

Generally, lenders will require six months reserve on the old property, as well as six month reserves on the new property.

For example, if you have a $1500 payment on your old house and are buying a home with a $2000 monthly payment, you will need over $21,000 in the bank.

Keep in mind, this reserve requirement is incremental to your down payment on the new property.

What If I Can’t Qualify Based On Both Mortgage Payments?

This answer is pretty straightforward, and doesn’t require a financial calculator to figure out.

If you are in this situation, then you will have to sell your current home before buying a new one.

If you aren’t sure of the value of the home or how your local market is performing, give us a ring and we’ll happily refer you to a great real estate agent that is in tune with property values in your neighborhood.

…..

As you can tell, purchasing one home while living in another can be a very complicated transaction.  Please feel free to contact us anytime so we can review your specific situation and suggest the proper action plan.

_________________________________

Related Articles – Mortgage Approval Process: