I asked a few seasoned loan veterans how this could be. There theory is that many homeowners are not aware that they are eligible for no equity home refinancing. Despite massive marketing campaigns on radio, television and direct mail, many homeowners are simply out of the loop. The HARP 2.0 will not last forever, so hopefully these homeowners will be reached so that they can realize the benefits of refinancing underwater loans. If you are a homeowner that closed your last home loan prior to June 1, 2009 and your mortgage is owned by Fannie Mae or Freddie Mac, you may be eligible for underwater mortgage refinancing.
- How do I get approved with bad credit mortgage lenders? We see thousands of borrowers that need a mortgage but happen to have credit scores below the threshold that today’s conventional lenders are seeking. With that being said, many people with low fico scores are migrating towards government loans, because they have more flexible guidelines with respect to credit. FHA still accepts borrowers with credit scores as low as 500 and VA still has no minimum credit scores in their guidelines for buying or refinancing. That doesn’t mean that government lenders are looking to approve people with poor credit, but underwriters can and do make exceptions when borrowers have compensating factors.
- Can I get a home loan with no down payment? Yes 100% home loans that require zero down-payment are available to people who meet the criteria of USDA and VA mortgage programs. The USDA is a loan reserved primarily for people that are buying or refinancing in a rural region of the country. The VA mortgage is a program designed for military borrowers and retired veterans. Both loan programs require nothing down and the interest rates are competitive.
- Do stated Income mortgage loans exist? Yes and No. Hard money and subprime lenders still offer “stated income loans.” In wake of the recent housing crisis, conventional and government lenders state that they do not allow stated or no income documentation loans. They require full documentation with their purchase and refinance programs. However, the “streamline” program which is endorsed by FHA and VA does not require pay-stubs, W2’s or verification of income from the borrower’s employer. They do in fact do a verification of employment in an effort to verify that the borrower still has a job. So in a sense, the government programs still allow stated income mortgages to borrowers that already have an existing mortgage with either FHA or VA. No cash out is allowed with the streamline either.
What Causes Mortgage Rates to Fall?
Bond Market: When the bond market gets battered in most cases home loan rates will rise. Specifically, when the 10-year bond worsens usually the pricing on the 30-year mortgage rates worsens as well. Home loan refinancing becomes more active when the bond market improves.
Economy: Typically bad news in the U.S economy is good news for the mortgage market. When the unemployment ticks up, rates often tick down. When the GDP comes in lower than expected, rates on home loans may decline as well.
Federal Reserve: When the Fed commits to increasing the purchasing of mortgage bonds then rates tend to improve. When the Federal Reserve instructs Congress to bail out Fannie Mae and Freddie Mac then the mortgage market rallies favorably. When the U.S government pushes quantitative easing, ie. QE3, the bond market reacts and home loan rates drop to the benefits of consumers.
Many Borrowers Are Scrambling to Lock their Mortgage Rate
Purchase loan inquiries have accounted for nearly 20% of total applications. The report also revealed that HARP loans may be driving 25% of total volume of home refinancing applications. Nationwide mortgage lenders have confirmed that rates have been higher and pricing had worsened. Most loan officers are locking loans and not taking chances on the market recovering.
The rates on 30-year mortgages averaged 3.4% paying a little more than half a percent for origination and the rates on the 15-year averaged 2.625% paying .7% for lending costs. We noticed a spike in inquiries for people looking to refinance with one of the hybrid ARMs like the 5/1 and 7/1 loans because they provided affordability and security for 5 or 7 years. We anticipate rates to stay steady for the next few weeks. If the debt ceiling deal goes sour than we may see another dip in rates but do not count on it.
As we reported last week, the pricing worsened slightly for most home loan programs as the unemployment fell nationally. The weekly mortgage rates forecast looks to remain about the same. According to the Mortgage Marketing Guide, “the Bond markets have been pressed down today with positive economic news from Germany and as the Treasury is selling a significant amount of government notes and bonds this week.”
Look for pricing opportunities possibly on Wednesday as the Federal Reserve members meet for the last Federal Open Market Committee meeting of the year. The Fed will release their monetary policy statement at 12:30 pm ET on Wednesday, so this could move interest rates.
In other financial news, Freddie Mac (FMCC) announced yesterday that home purchase and refinance rates should remain near record lows through the first half of 2013. The Freddie Mac spokesman also mentioned that home loan rates could increase in the second half of 2013, but should remain below the four percent threshold.
We suggest, checking back with us later in this week for pricing changes and current mortgage rates that could prove to be more favorable for millions of American consumers looking to save money with record low interest rates.
- Low Down-Payment Home Loans
- Competitive Interest Rates for Buying a House
- Reduced and No Cost Mortgage Opportunities
- Flexible Credit Guidelines with 500 Minimum Credit Scores
- No Pre-Payment Penalties for Refinancing
Although FHA lenders do make exceptions on some borrowers to spend up to and even over 50% of their gross monthly income on their combined monthly debts, we prefer to keep this ratio at or below 43%. However, the automated underwriting system often approves borrowers for home loan payments that are above their comfort zone, because new homeowners often start spending more money. Buying new furniture and making home repairs can result in increased expenses.
Maybe the most notable downside to loans insured by the FHA is that they require both an upfront mortgage insurance premium and then monthly insurance payments on top of that. Unfortunately in some cases these premiums have become twice as high as the private mortgage insurance offered on conventional mortgages. The rise in FHA insurance rates can be directly attributed to the increase in loan defaults and depleted reserves under the FHA loan programs.
However with a minor down-payment of only 3.5%, lenders continue to match first time home buyers with FHA loans. According to VIP branch manager, Pat O’Connell, “You can’t forget that FHA has given millions of Americans the ability to become a homeowner with their flexible purchase mortgages.” O’Connell continued, “Many people use FHA home loans like training for new homeowners because the borrowers will often only keep the loan until they have enough equity to shed the mortgage insurance or they will refinance into a loan with lower housing expenses derived from reduced mortgage insurance premiums.”
It appears that FHA will be hiking insurance premiums once again in 2013, so it this could limit the loan origination from some FHA lenders, but as the purchase market roars back with affordable housing options, you can bet that FHA will be ready to extend first time home buyers loans to those in need.
Will the Government Shut Off the Aid to Borrowers that Need a No Equity Refinance?
There have been many government loan programs that have attempted to help distressed borrowers with underwater refinancing but very few have succeeded. The FHASecure, Hope for Homeowners, EHLP, HAMP, Fannie Mae Du Refi-Plus and the Home Affordable Refinance Program all provided a program to refinance underwater mortgages, but very few loans were closed when it was all said and done. On paper, these relief plans all looked great, but when the lenders and insurance companies read the fine print of these programs they were turned off. They offered a path to achieve a low fixed interest rate with loan to values ranging from 105 to 125% but lenders never felt comfortable originating the underwater mortgage programs mostly because the risk was too great. These federal programs neglected to solve the risk factors most refinance lenders were simply not willing to take.
Finally the Federal Government, Fannie Mae, Freddie Mac and FHA came together to overcome the obstacles that lenders and insurance companies had and they rolled out several solutions for distressed borrowers to actually achieve an underwater mortgage refinance. With home values going up and down like a row boat drifting out to sea with hurricane swells, it became clear that a 125% cap on loan to value ratios was not enough nationally. In many regions like Arizona, California, Nevada, Florida, Georgia New Jersey, Maryland and Virginia, loan to values greatly exceeded the 125% threshold. We saw reports of upside down mortgages at 200 and 300% loan to value in some hard-hit regions. So the only way to overcome the negative equity dilemma was to completely scrap the ratio between loan balance and property value. The other issue was the “lender risk”, so the Federal Agencies agreed to minimize the risk so that loan companies and banks would participate in the underwater refinance programs. The HARP 2.0 was born with loan to value limits and limited liabilities for HARP lenders.
1. Are you eligible for no equity refinancing from one of the government sponsored entities like Fannie Mae or Freddie Mac? You may have an upside down mortgage, but your lien must be owned or serviced by Fannie Mae(FNMA) or Freddie Mac(FMCC) and have been closed prior to June 1, 2009.
2. Verify with Fannie Mae whether your 1st loan online is owned by them > Fannie Mae Loan Look Up
3. Check to see if Freddie Mac owns your mortgage > See if Freddie Own Your Home Loan
4. Verify if you meet the 80% minimum loan to value criteria under the HARP 2.0 guidelines
5. Are you below the 45% maximum debt to income ratio limit?
According to a KBW Research report, over than 1.6 million homeowner have closed on a HARP refinance loan to date, of which 618,217 refinances took place in 2012. The reality is that the pool of qualified HARP applicants is shrinking significantly. Many consumers bought homes in the U.S. after the “May 31, 2009″ cut-off that Fannie and Freddie require for refinancing under the HARP umbrella. That means that there are tens of millions who have an underwater mortgage but do not meet HARP requirements to refinance.
Looking forward at Obama’s second term, many finance analysts believe that the Obama Administration will have more liberty to take their mandate and force the issue of the Federal government’s role in housing and how it relates to the home finance industry. Only time will tell, but to Obama’s second term may lead to HARP 3 and the federal mandate that banks write-down mortgages to current values. Of course these are very controversial topics that you can expect to see fighting on the Hill as the Republican led Congress and the Democratic led Senate make these issues political.