NEW HARP 2 MAY HELP HOMEOWNERS
NEW HARP 2 MAY HELP HOMEOWNERS
In recent months, there has been some positive momentum in the government’s Home Affordable Refinance Program (HARP), designed to help troubled homeowners refinance their home loans so that they can afford the monthly payments.
In late October, the Obama administration announced a modification of that program, designating it HARP 2. It applies to loans that purchased by Fannie Mae and Freddie Mac. Those two government sponsored enterprises are now releasing the specifics of this new program. The government hopes to simplify the program for both the distressed homeowner and the banks and loan servicers who are dealing with the defaulted loans.
By helping the banks and loan servicers, they will indirectly help the homeowner. With that goal in mind, they are reducing or eliminating the risk-based fees Fannie and Freddie charge the loan originators for underwriting mistakes made when the loan was processed and originated.
They are also streamlining the underwriting process in an attempt to speed up the lending process.
Although many distressed homeowners will not qualify for this program, those who do will find it easier and cheaper to refinance.
Lenders will no be accepting loan applications until December 1, 2011, and will not be considering certain types of loans until March of 2012.
To Qualify:
- The loan must have been sold to Fannie Mae or Freddie Mac on or before March 2009
- The loan balance must be more than 80% of the home’s market value
- There can be no late mortgage payments in the past six months and no more than one 30 day late payment in the past twelve months
- Loans refinanced under HARP 1 do not qualify
Some improvements over HARP 1 include:
- Borrowers can refinance into a new fixed rate loan no matter how much they owe. The HARP 1 program caps the loan amount at 125% of the home’s market value
- Borrowers can refinance into a new adjustable rate mortgage loan as long as the loan has a fixed rate for at least five years. However, in this case the new loan has a cap of 105% of the home’s market value.
- The new program reduces or eliminates the fees Fannie Mae and Freddie Mac charge on loans based on risk (lower borrower credit score, higher loan to value ratio). In the past, those fees could exceed 3% of the loan balance! Under HARP 2, the fees will be caped at .75% of some loans and will be zero on fixed rate loans with a term of 20 years or less.
- In most cases, the borrower will not have to pay for a new appraisal. Fannie Mae and Freddie Mac will use their automated in-house appraisal system
- In most cases borrowers will not have to meet a specific debt-to-income ratio or credit score level
- Borrowers who refinance with their existing lender will have reduced document requirements
- Second mortgages are permitted if the borrower qualifies
The government target is to refinance between one and two million loans through this program.
Qualified borrowers will benefit, but investors may suffer. Since their investments are guaranteed, guaranteed payments may come with strings that require them to reinvest their proceeds at a lower interest rate.
For more information, select this link to the San Francisco Chronicle article:
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2011/11/17/BUQM1M00BP.DTL&tsp=1&ao=2
How Do I Avoid Foreclosure: Part 7
How Do I Avoid Foreclosure: Part 7
A step by step process for distressed homeowners.
This is the seventh in a series of posts designed to be a step-by-step directory for distressed homeowners to use to try an avoid foreclosure.
We continue the discussion of various options that a distressed homeowner may have. Some of these options only apply to homeowners in very specific situations and will not apply to most; however, if you meet the criteria you should take advantage of any opportunity that presents itself.
Bankruptcy
This option will stop the foreclosure for a period of time but may only delay the process. Anyone
considering this option should consult an attorney who specializes in Bankruptcy. Be careful to select one who has a good reputation. Call if you need a referral.
There are several kinds of bankruptcy. Chapter 7 Bankruptcy is a process to liquidate your assets. Chapter 13 allows you to restructure your debt. You may have 3 -5 years to catch up on your delinquent accounts.
I major drawback is that you will find it difficult to sell your property during the bankruptcy process. You will have to get the trustee’s approval to do so. Also, if the homeowner is not able to make all of their payments after the bankruptcy the home will foreclose anyway. All of the time and effort will have been wasted.
Note that a bankruptcy has an impact on your credit similar to that of a foreclosure. Loan applications always ask in you have filed for bankruptcy, so there is a long lasting effect on your ability to buy on credit.
Short Sale
When a homeowner owes more on their home than it is worth and none of the other options listed in this and previous postings in this series do not apply, the Short Sale option may.
In order to qualify for a Short Sale the homeowner must have a financial hardship that is acceptable to the lien holder. Major loss of income, loss of a job, major medical, death in the family are some of the hardships that lien holder may accept.
As a result of the financial hardship, the homeowner must have a monthly short fall–more month than money.
And Finally, the homeowner must be insolvent. They can not have significant liquid assets that would allow them to pay their loan shortfall and expect the lien holder to forgive a portion of their loan commitment.
When a homeowner meets the lien holder criteria there is a strong possibility that a short sale will be approved. The process takes time, a lot of documentation supporting the hardship, shortfall and insolvency; and a lot of work. A majority of Realtors avoid short sales because of the amount of work involved and uncertainty that they will be approved.
There is also a strong possibility that the homeowner will owe taxes on the portion of the loan that is forgiven. Not every attempt at a short sale is successful. Each case is different and has to be examined in detail by a professional who specializes in helping homeowners avoid foreclosure.
Those who do complete am approved short sale are able to purchase another home after two years. The hit to their credit is not nearly as damaging as is a foreclosure or bankruptcy. Loan applications do not ask if you have completed an approved short sale. Long term this option is far superior to many of the others listed.
The latest news is that most banks are now telling their borrowers in default that a short sale is their best option. Of course, it is better and less costly for them than would be a foreclosure, but it is also much better for the borrower.
Here are links to a few web sites with helpful information for less specific situations:
http://portal.hud.gov/portal/page/portal/hud/topics/avoiding_foreclosure
http://www.ForeclosureStopper.ORG
Feel free to contact Mike West, Realtor, CDPE, if you have any questions or need help.
(916) 337-0658 e-mail: Mike@BMikeWest.com
How Do I Avoid Foreclosure: Part 6
How Do I Avoid Foreclosure: Part 6
A step by step process for distressed homeowners.
This is the sixth in a series of posts designed to be a step-by-step directory for distressed homeowners to use to try an avoid foreclosure.
We continue the discussion of various options that a distressed homeowner may have. Some of these options only apply to homeowners in very specific situations and will not apply to most; however, if you meet the criteria you should take advantage of any opportunity that presents itself.
Short-Refi
This is a relatively new option in which the lender may reduce either the principal on the loan and the monthly payment. The qualification process is demanding and not all lenders will consider it. It does show how far some lenders are willing to go to avoid foreclosure. Make sure you have all of your documents in order and ready to submit. Naturally, you will have to show on paper that you can meet the commitment on the new loan.
Deed-in-Lieu of Foreclosure
Known as a friendly foreclosure, in this option the borrower surrenders the deed to the property in exchange for a commitment from the lender not to pursue any further action against the borrower. This usually only works when there is only one loan on the property. If the owner has any equity in the property it is not a recommended course of action.
The advantage to the lender is that they do not have to incur the cost of foreclosure. Some lenders require that the borrower be up to date on their payments in order to qualify.
Here are links to a few web sites with helpful information for less specific situations:
http://portal.hud.gov/portal/page/portal/hud/topics/avoiding_foreclosure
http://www.ForeclosureStopper.org
In future posts we will discuss other options people may use to avoid foreclosure. Those posts will be coming soon.
Feel free to contact Mike West, Realtor, CDPE if you have any questions or need help.
(916) 337-0658 e-mail: Mike@BMikeWest.com
How Do I Avoid Foreclosure: Part 5
How Do I Avoid Foreclosure: Part 5
A step by step process for distressed homeowners.
This is the fifth in a series of posts designed to be a step-by-step directory for distressed homeowners to use to try an avoid foreclosure.
We continue the discussion of various options that a distressed homeowner may have. Some of these options only apply to homeowners in very specific situations and will not apply to most; however, if you meet the criteria you should take advantage of any opportunity that presents itself.
Refinance
This option may work if you can meet two critical criteria. First, you have to have sufficient equity in the property to be able to qualify for a refinance. In this market that usually means at least ten percent of the current market value. Lenders would like to see more. Second, your credit can not have been too badly damaged. Missed mortgage payments have a major impact on credit scores.
Few refinances result in a reduction in the monthly payment and/or a reduction in principal. Even if you do meet the two primary requirements, unless you have a chunk of cash to contribute to reduce the principal, higher payments will be the most likely result.
Also, unless the underlying hardship has been resolved, you may still have difficulty making the revised mortgage payment.
Mortgage Modification
Homeowners who can prove that they can come close to affording their monthly mortgage payment may qualify for a loan modification. Lenders are sometimes willing to change the terms of a loan if the modification will keep the loan producing. The most common form of modification is an interest rate and payment reduction for a period of time, usually one to five years. At the end of the adjusted period the terms revert back to those originally set. Any short fall that the lender takes during the adjustment period is usually added to the principal. So in effect, the payments are reduced for a period of time and the term of the loan is extended to allow the borrower to repay the loan in full.
There are very few instances in which the lender reduces the principal balance. The borrower signed a commitment to pay the loan balance and the lender expects payment in full.
Lenders are very cautious when considering loan modifications and will require extensive documentation as proof that the borrower will be able to meet the entire commitment of the modification.
A note of caution to those considering a loan modification. Loan modification fraud is rampant in the marketplace. Exercise great care before you pay any individual or organization to represent you in an attempt to modify your existent mortgage. Those asking for payment in advance should be scrutinized even more carefully. The California Department of Real Estate publishes a list of individuals and organizations that are suspected of fraudulent activities and the California State Bar has published a list of attorneys who have crossed the ethics line. Dealing with individuals and organizations outside of California is even more dangerous. The link to the HUD web site below should be helpful.
Here are links to a few web sites with helpful information for less specific situations:
http://portal.hud.gov/portal/page/portal/hud/topics/avoiding_foreclosure
http://www.ForeclosureStopper.org
In future posts we will discuss other options people may use to avoid foreclosure. Those posts will be coming soon.
Feel free to contact Mike West, Realtor, CDPE if you have any questions or need help.
(916) 337-0658 e-mail: Mike@BMikeWest.com
How Do I Avoid Foreclosure: Part 4
How Do I Avoid Foreclosure: Part 4
A step by step process for distressed homeowners.
This is the fourth in a series of posts designed to be a step-by-step directory for distressed homeowners to use to try an avoid foreclosure.
We continue the discussion of various options that a distressed homeowner may have. Some of these options only apply to homeowners in very specific situations and will not apply to most; however, if you meet the criteria you should take advantage of any opportunity that presents itself.
Rent the Property
This is an option that will work if you can rent the property to a tenant who can meet their rental commitment long term. The danger in an economy with over 10% unemployment and 26% underemployment is that the tenant can lose their job or take a pay cut in order to keep their job. If that happens, the rent checks are likely to stop coming in while the mortgage payments are still due each month.
Over 40% of home in foreclosure were not owner occupied, meaning that they were rentals or vacation properties. When the rent checks stopped coming in the owners could not continue to make their payments and lost the property to foreclosure. The F word has a major impact on their ability to buy anything on credit for seven to ten years.
The issue of cash flow is also important. Not all homes will rent for enough to cover the mortgage, taxes, insurance and upkeep. Many landlords try to cover the mortgage payment with rental income and have to cover some or all of the taxes, insurance and upkeep with income from other sources; a difficult thing for most of us to be able to do long term.
Refinance
This option becomes increasingly more difficult as housing values decline. A few years ago, when home prices were increasing in leaps and bounds 100% financing was easy to obtain. Today, lenders want to see some equity in the property before they will even consider a loan. Lenders want to see an 80% loan-to-value ratio; that is to say, that they will loan up to 80% of the current market value on a property if all other factors are acceptable. Some will consider going up to 90% of current market value in rare circumstances, but they will charge higher interest rates. It is the risk/reward issue. The higher the risk, the greater the reward to the investor.
Unless you have an equity position of 20% or more given the present market value of your property, refinancing will be very difficult at best.
If your equity position is less than 10% it is not an option.
Here are links to a few web sites with helpful information for less specific situations:
http://portal.hud.gov/portal/page/portal/hud/topics/avoiding_foreclosure
http://www.ForeclosureStopper.org
In future posts we will discuss other options people may use to avoid foreclosure. Those posts will be coming soon.
Feel free to contact Mike West, Realtor, CDPE if you have any questions or need help.
(916) 337-0658 e-mail: Mike@BMikeWest.com