Joe Montoya's Real Estate Blog

Seems ever since we got into this mess, led mostly by the greed of everyone all focused this time on real estate, the government has been trying everything to help get us out.  I don’t think even the government realized the magnitude of what had been happening over the previous ten years. 

 I used to tell everyone it was the Tax Reconciliation Act of 1997 that was bringing us out of the oppressive effects of the Tax Reform Act of 1986.  Little did I know that this would lead to our demise in the real estate investment world as we knew it. 

Since none of the previous steps by the government to “fix” the mortgage melt down have had much success, let’s see what this new twist will do to help what has turned into an avalanche of “strategic foreclosures”, whereby homeowners in otherwise good standing and with no delinquencies have looked into the future and decided their underwater home was not to recover as previously assumed by most. 

HARP 2 refinance plan a boost to borrowers, banks
The Obama administration announced broad outlines of the revised Home Affordable Refinance Program on Oct. 24. Fannie Mae and Freddie Mac issued guidance last week that filled in most of the details.

Here is a recap according to a story in SF Gate

• HARP 2 greatly reduces or eliminates the risk-based fees Fannie and Freddie charge on many loans and virtually eliminates the chance that lenders will have to pay for losses on loans that go into default if they made underwriting mistakes. It also vastly streamlines the underwriting process.
• Although lenders can begin taking applications Dec. 1, it could take several months before the new loans are made. Fannie Mae said it won’t begin buying certain types of refinanced loans until March.
• To qualify, the existing loan must have been sold to Fannie Mae or Freddie Mac on or before May 31, 2009. The loan balance must be more than 80 percent of the home’s market value. The loan must be current for the past six months, with no more than one late payment in the past 12 months. Those who previously refinanced through HARP are ineligible.
• The new program improves on the existing HARP refi program by letting borrowers refinance into a new fixed-rate loan regardless of how much is owed. The existing program caps the new loan at 125 percent of the home’s market value.
• Homeowners also can refinance into a new adjustable rate loan that has a fixed rate for at least the first five years, but in this case the new first mortgage cannot exceed 105 percent of the home’s value.
• In most cases, borrowers won’t have to pay for a new appraisal (Fannie or Freddie will use their automated in-house appraisals) or have any particular debt-to-income ratio or credit score.
   
• Borrowers who refinance through their existing loan servicer generally won’t have to document their income or assets or have a particular credit score or debt-to-income ratio. The lender will only have to verify that one borrower on the loan has a job or other source of income, but not the amount of income.
   
• Homeowners who refinance through a new lender will have to meet additional underwriting requirements, but not as many as people who are refinancing through traditional routes.
• Borrowers can have a second loan on the house of any amount and still qualify, as long as the holder of the second mortgage re-subordinates it to the new loan. Most of the big lenders have agreed to do so, but there is no guarantee they or others will.  If borrowers have mortgage insurance on the existing loan, they must maintain it, but they should be able to transfer that insurance to the new loan at the old premium rate, according to Freddie Mac. The big mortgage insurers have agreed to allow this, but again there is no guarantee all will.
• There are still many questions about the program, such as what interest rates banks will charge, whether they will impose additional fees or underwriting requirements beyond what Fannie and Freddie require, and whether investors will be willing to buy securities backed by these new HARP 2 loans.

For more information on purchasing or selling a home, contact Joe Montoya at 209-740-1447 or by email at joemontoya@gotracy.com