Making Home Affordable Refinance
This shouldn’t take me as long to explain as it did to explain President Obama’s Making Home Affordable Loan Modifications, but this program could help you out just as much if you’re in the right position. There’s a lot of information in the documents I posted last week and I really recommend you read the ones that apply to your situation for yourself.
Overview
Who it helps: Homeowners with loans owned or securitized by Fannie Mae or Freddie Mac that would like to refinance but haven’t been able to because they owe more than 80% of the value of their home. You must be current on your mortgage to qualify.
Who it doesn’t help: Homeowners behind on their mortgage payments, those with loans not owned or securitized by Fannie Mae or Freddie Mac, and those whose first mortgage balance is more than 105% of what their home is currently worth.
Basic concept: Fannie Mae and Freddie Mac will refinance your first mortgage into a fixed-rate 15 or 30 year mortgage. The interest rate will be based on market rates, points, and fees at the time you apply. No balloon payments or prepayment penalties will be allowed.
Limitations: If you have a second mortgage (whether secured by Fannie Mae, Freddie Mac, or another lender), that lender must agree to remain in the second position. You must have sufficient income and credit score to qualify for a conventional 15 or 30 year mortgage. You cannot take money out of your home…cash-out refinancing is prohibited.
What will it cost homeowners: Depending on how long you’ve had your loan, you may not need an appraisal and some other documentation or fees typically associated with a refinance. This will be lender dependent, but should keep the costs down and speed processing up.
Program end: The Home Affordable Refinance program will end in June 2010.
Are You Eligible?
1. Must have mortgage that is currently owned or securitized by Fannie Mae or Freddie Mac. To find out if you do, go to:
- Fannie Mae: www.fanniemae.com/homepath/homeaffordable.jhtml or call (800) 7FANNIE (8 am – 8 pm EST)
- Freddie Mac: www.freddiemac.com/avoidforeclosure/ or call (800)-FREDDIE (8 am – 8 pm EST)
2. House must be owner-occupied, primary residence with a mortgage originated before Jan 1, 2009 that has an unpaid balance less than $729,750.
3. Must be current on your loan. Current is defined as no payments more than 30 days late within the last 12 months.
4. Your must owe less than 105% of what your home is worth on your first mortgage (the one being refinanced).
5. You must have sufficient income to pay the new payment…which could be higher than your old payment.
How does it work?
1. Contact your servicer (the people you send your payment to) and ask for their Home Affordable Refinance application. You’ll need to be ready to provide:
- Proof of your current income
- Your most recent tax return (and an IRS Form4506-T to allow them to obtain it from the IRS as well)
- Information about any second or equity loans/lines of credit you currently have
- Account balances for all other credit accounts (cars, education loans, credit cards, etc)
2. Your servicer verifies your eligibility, income, and application and offers your a low-cost refinance if you qualify.
Notes
1. This may not lower your payment. It might even raise your payment if you currently have an interest-only mortgage payment because this is a fixed-rate, fully amortized loan. If you have a higher-rate loan than you can qualify for now and are payi.g a fully amortized payment, you’ll probably see a drop in payments. If you don’t currently escrow your insurance and property taxes, though, you may see an increase. I can’t find any documentation that says escrowing these amounts is mandatory, but it is in the Home Affordable Loan Modification Program, so I assume it will be in this one too…but it may be up to your lender.
2. If you’re behind on your payments or owe more than 105% of what your home is worth, you are not eligible to refinance and should consider President Obama’s Loan Modification program instead.
3. This will not reduce the amount you owe on your mortgage. It only affects your interest rate. As a matter of fact, you’ll probably end up owing a little more than you do now unless you pay all the fees yourself rather than including them in the loan.
Closing thoughts
I know this is A LOT of information, so if you have questions or comments, please post below. But remember, what I say is just an informed opinion…you really need to talk to your lender. You can also check out last week’s post for links to all the official Treasury Department Home Affordable Loan Modification and Refinance documents.
I expect most servicers to be able to start answering questions and sending out application this week sometime. Please be patient, though, because while they’re interested in helping you, their primary focus right now is on people in or near foreclosure. Plus, this is a big change to the way they do business…they have to set up internal processes to handle it
Don’t expect that every person you talk to will be an expert. You need to be the expert so you’ll know if something they’re telling you is wrong.
If you’ve signed up for site updates, you’ll be notified immediately when we post follow up articles. If you got an e-mail notification of this article, you’re already signed up! If you’d like to sign, you can below.
March 10th, 2009 at 10:43 am
Several people have e-mailed to ask what your options are if you don’t have a Fannie or Freddie loan. So if you’re wondering too, here’s where we sit right now.
While servicers don’t have to use this guidance, many of them are instituting similar programs…although they can have very different qualification/eligibility criteria. The bottom line is: call your servicer…they may be able to work with you.
Brent Lane wrote an article a few weeks ago on refinancing out of foreclosure. It was before the President announced his program, but this is still very relevant and useful info.
Todd and Brent also did a conference call where Brent went through many of the options including short refinances and Hope 4 Homeowners. I highly recommend you listen…it takes about an hour, but provides great insider knowledge from someone that works mortgages every day.
Reply
March 26th, 2009 at 12:03 pm
Hello, I bought my home by myself in Nov 07- the home appraised at 220k and I paid 190k with a 7.65% fixed 30 yr, payment of 1509 w/taxes/insurance (lender paid mortgage ins.). I’ve had a list of bad luck, had to replace roof, fence, deck, plumbing, etc. Now that the house is in good shape my ex lost his job, child support now not frequent/unreliable. Debt is driven up and my house payment went up to 1607 due to my prop insur going up (claims drove it up). My reg income is now 4080/mo. with child support sometimes. I’ve never been late on a payment, loan is through Wells Fargo & backed through Freddie Mac. Questions are: will they try to count child support as income? How do they determine what my house is worth? I know its probobly gone down in value with the economy but zillow has it at 169k, but their value never matched up with the appraisal, was always low. Also, I’ve contacted Wells and they have told me they are not sure when the program will start, is there a way to get them to look at my situation? It is harder and harder to make my payment.
Reply
Todd Temaat Reply:
March 28th, 2009 at 9:22 pm
Thanks for writing…
Will they count child support as income?
Maybe…depends on the lender and on you. Most of the time on credit applications, you don’t have to include it if you don’t want to. They’ll probably ask for some banks statements too, though, so I’d be prepared to explain the extra payments and show that they’re sporadic rather than regular.
How will they determine your home’s value?
An appraisal will probably be required.
Is there a way to get them to look at your situation?
Well…you can keep calling. Unfortunately, MOST lenders have not completed their implementation of the President’s plan. They’re still deciding on their processes and training their people. Continuing to call is about the only thing you can do.
For the refinancing part of the plan, you must be current on your payments. For the modification portion, it doesn’t matter if you’re current or not…although there are incentives in the plan for them to work with homeowners like you that are about to fall behind but are current at the moment.
In the end, you have to do what’s right for your family. Continue to call and request an eligibility verification for both the refinance and modification plans and continue to explain your situation. You can also begin Wells Fargo’s normal process for people in your situation and then transition sometime later.
Don’t get stuck thinking you have to refinance…there are other options and if you’re falling behind, you need to be proactive and investigate those options with your lender.
I posted a CNN/Money video talking about how lenders are having troubles implementing the President’s plans on my FaceBook profile if you’re interested. It’s called Foreclosure Fix on the Way.
Best wishes and please don’t hesitate to ask follow up questions if you have them. You might also want to check out our articles on hardship letters and explaining your situation to your lender.
Reply
April 1st, 2009 at 10:40 am
Any information on PMI with the refinance? That could certainly also offset any gains made with the lower rate.
Reply
Todd Temaat Reply:
April 1st, 2009 at 5:38 pm
Thanks for asking. I pulled this from the Treasury Department’s Borrower FAQ about the refinance…
“If your existing loan has private mortgage insurance, you will need the same amount of insurance coverage for the refinanced loan. If your existing loan does not have private mortgage insurance it will not be required as part of the Home Affordable Refinance.”
Reply
April 16th, 2009 at 12:59 am
I HAVE A FAMILY ARE MY FRIENDS, I’VE BEEN TRY TO HELP THEM TO QUALIFY FOR A LOAN MODIFICATION WITH COUNTRYWIDE FOR THIRD TIME WAS DECLINED, THEY ARE BEHIND 8 MONTHS SINCE PAYMENTS WHEN IN TO VARIABLE,MORTGAGE INCLUDE PITI AND MI SO NEXT SITUATION IS:
ADJUSTABLE RATE 5.5%
WAS FOR FIVE YEARS
STATEMENT FINANCIAL
PITI+MI= $2,791.65
EXPENSES: $1,797
INCOME PER MONTH
BORROWER: $2,048
CO-BORROWER: $2,100
MONTHLY RENT ROOM: $1,000
TOTAL INCOME: $5,148
DO WE HAVE A CHANCE TO QUALIFY FOR LOAN MODIFICATION AND TRY FOURTH TIME
LAST TIME COUNTRYWIDE SAID RE-PAYMENT PLAN BECAUSE INVESTOR BELONG THIS LOAN WILL NOT WORK OBAMAS’ PROGRAMS.
PLEASE CAN YOU RECOMEND OTHER OPTION IF WE HAVE ANY OPORTUNITY TO IMPROVE THEIR PAYMENT FOR THIS FAMILY
Reply
Todd Temaat Reply:
April 18th, 2009 at 5:27 pm
First of all, I’d recommend you continue trying to modify your loan until they actually foreclose on the house. Don’t give up…the rules that servicers are operating under are changing constantly and investors are under A LOT of pressure to cooperate. Simply because they said “no” last week or last month doesn’t mean they’ll say “no” now.
Second, please check out my response (dated: April 18th, 2009 at 5:19 pm) to the question Jim asked on this post. He has several of the same questions you do…just different loan amounts and servicer. And I gave him several options other than modifying.
Please feel free to leave another comment if I didn’t answer your question.
Reply
January 28th, 2010 at 11:07 pm
Could you please comment on our situation. We can not refinance conventionally, because, at least at our bank, we need a 80% loan to value. We are current on payments. We wanted to refinance with a 15 year loan instead of 30 because it is the only way for us to get a lower interest rate as what we have. We tried the Affordable refinance with our bank but they said if you have a 30 year mortgage you have to refinance for another 30 years. We were not allowed to change the terms. We wanted a 15 year loan since we have only 21 years left to pay. Is this true universally at all banks?
Reply
Todd Temaat Reply:
January 29th, 2010 at 8:38 am
To obtain a true Home Affordable Refinance loan, yes you have to extend back to 30 years. However…if you can handle the higher payment a 15 year loan would give you, my advice would be to do the Home Affordable (or other) refinance and then just pay more than is required every month. Figure out what your payment would be for a 15 year loan at the interest rate you want and then pay that every month rather than the amount required for the new 30 year loan the bank gives you. The extra you pay every month will pay your principle down faster and when you get to the end of the loan, your total effective interest rate will be lower than what you agreed to in the refinanced loan docs.
I’d recommend two things for you right now.
1. Talk to Brent Lane (http://www.brentlane.net). I trust him and he’ll give you good advice even if he can’t refinance your loan. If you contact him, please tell him you’re coming from the Truth in Foreclosure site.
2. Watch this video about effective interest rates…it’s quite enlightening. http://www.youtube.com/watch?v=hR0UiD2phho
Reply