Refinancing Mortgages Could Get Easier
Finally! For all of you that have underwater mortgages and cannot refi under traditional methods this will be a godsend.
From SFGate
Jean McGuinness has excellent credit, makes a good income and has never been late on a mortgage payment for the Alameda house she bought eight years ago.
She could save several hundred dollars a month by refinancing at today’s low interest rates, now around 4 percent – compared with the 6.375 percent she pays. “Refinancing would be fantastic,” said McGuinness, a single mom who does accounting and office management. “It would be money in my pocket for extracurricular activities and camps and sports for my son.”
But she cannot get a refi because she owes $500,000 and her home’s value has fallen to $450,000. Lenders shun such “underwater” homes as too risky since there is not enough collateral if the homeowner defaults.
Millions of people nationwide share her predicament, trapping them in high-interest mortgages. If they could refinance, they’d have more cash flow, creating a stimulus effect that economists compare to a long-lasting tax cut.
Now the pressure is on in Washington to help them with a widespread refi plan.
President Obama told Congress last month that he wants to help “responsible homeowners” refinance, saying it would “give a lift to an economy still burdened by the drop in housing prices.”
Last week, a bipartisan coalition of 16 senators, including Barbara Boxer and Dianne Feinstein of California, wrote to the administration urging swift action on a refi plan.
“A huge floodgate would open up” if underwater refinancing were broadly available, said Fif Ghobadian, a broker at Guarantee Mortgage in San Francisco. “It would provide the help that lowering interest rates cannot do alone. Someone who’s been making payments at 7.5 percent religiously but cannot qualify to refi – boy, would that 4 percent make a huge difference in their life.”
Ghobadian said about 40 percent of the people who call her for refis cannot qualify because they don’t have enough equity in their houses.
250,000 in Bay Area
In the Bay Area, more than a quarter-million homeowners were underwater in the second quarter, according to real estate information service Zillow. Nationwide, 15.3 million homes were upside down. Those who have less than 20 percent equity in their homes also have trouble refinancing.
At the same time, about three-quarters of mortgages backed by Fannie Mae and Freddie Mac are at interest rates above 5 percent, and almost 38 percent are above 6 percent. Experts say it’s evident that those homeowners would refinance at the low rates if they could.
How might a program be structured?
In fact, a program already exists that provides guidelines to lenders for refinancing some Fannie- and Freddie-backed underwater mortgages. It’s called HARP (Home Affordable Refinance Program), it’s been around for two years, and it’s resulted in about 800,000 refis, far short of the 5 million originally aimed for. Only a fraction of those were homeowners who were deeply underwater.
The program’s main obstacle has been the lenders themselves. Worry about issues such as being forced to take responsibility for refis that default (known in the industry as “buybacks”) has made lenders reluctant to issue HARP mortgages, industry observers said.
What’s in the works would likely expand HARP to make it more palatable to lenders and more usable by a broader swath of homeowners.
“Changes (being contemplated) would address several HARP obstacles,” said Erin Lantz, director of the mortgage marketplace for Zillow. “The industry now makes it hard for people to qualify. The process would be more streamlined.”
Discussion points
Here are some key criteria being discussed:
– Applicants: Even with a big federal push, many underwater homeowners still won’t qualify. Many may be too far underwater, perhaps owing twice as much as their house is worth. Some may have blemished credit or inadequate income.
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