Greg Cowart on Zillow
Greg Cowart - Mortgage Broker or Lender at The Securus Group
Greg Cowart - Roseville Loan Guy

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Can I refinance NOW????

The gov recently announced some great changes to the Home Affordable Refinancing Program (HARP). The updates to the program are aimed at those who have spent the years since the recession began keeping up with their mortgage payments as others walked away (read why “walking away” is a misnomer here and here) from their houses even though they can make the payments. The idea here is to help millions more homeowners save some money on their house payments by helping them take advantage of today’s historically low interest rates, even if they don’t have any equity to qualify for a standard conventional mortgage.

Eligibility:

1. Your loan must be guaranteed by Fannie Mae or Freddie Mac.

Follow these links to find out…

http://www.fanniemae.com/loanlookup/

https://ww3.freddiemac.com/corporate/

2. Your loan must have been acquired by Fannie or Freddie before April 1, 2009.

3. You haven’t already refinanced under HARP (or if you have it was between March and May of 2009).

4. Your Loan-To-Value ratio must be higher than 80%. This just means you have less than 20% equity. If you have 20% equity or more a standard conventional refinance is what you need.

5. You haven’t been late with a mortgage payment in the last six months. In the last year, you haven’t been 30 days late more than once. Because the program will last through Dec. 31, 2013, there’s still time for borrowers to get on track.

6. There must be a tangible benefit. You must end up with a lower payment or trade in an ARM (adjustable) for a fixed rate mortgage.

What about my home’s appraised value?

The biggest challenge to getting a HARP loan up until this point was, even though appraisal guidelines were relaxed, you still had to be close to having some equity. You could be underwater but not that much. The good news is some mortgage holders will be eligible no matter how much they owe or how much the house is worth when Fannie and Freddie rolls out the Property Inspection Waiver. For others, there is still a Loan-To-Value ceiling.

If you have a fixed-rate mortgage with a term of up to 30 years, there’s no maximum LTV ratio, meaning there’s no maximum amount you can owe on your home if you qualify for the Property Inspection Waiver.

If you have a fixed-rate loan but the term is over 30 years (very rare), you can only owe 105% of what the house is worth.

Do you have an adjustable rate loan? As long as you didn’t sign up to pay on it for more than 40 years, or fewer than 5, you can owe 105% of what your house is worth.

Have a recent bankruptcy or foreclosure?

The standard waiting period has been removed for folks who have those blemishes on their credit histories. You still have to qualify for the loan but a recent foreclosure or BK won’t automatically disqualify you for a refinance.

When can I apply?

The program begins on December 1st however many of the changes that will help a lot of people won’t roll out until next year. Of course I’ll keep everyone updated on the program as it rolls out, this is about to help A LOT of people save thousands on their mortgage payments and also give a little boost to Sacramento area real estate values as it saves some people from losing their home.

New refinance system being considered

The administration is now considering a new refinance program that would provide millions of homeowners with new, lower interest, lower payment mortgages…

The initiative would reportedly allow borrowers with loans backed by Fannie Mae and Freddie Mac to refinance at today’s rates, even if they are in negative equity or have bad marks on their credit. Two Columbia business professors say such a move would save homeowners an average of $350 a month and pump an extra $118 billion into the economy, the report stated.

This would be wonderful for Sacramento area homeowners that can’t currently qualify a refinance at today’s low rates, and in turn have a positive effect on the local economy as people have more money to spend every month. There really is no negative. Since this would apply to mortgages already backed by Fannie Mae and Freddie Mac there is no additional risk to the government. In fact it will reduce risk to Fannie Mae and Freddie Mac by making it so homeowners can more easily make their monthly mortgage payment. Let’s see how this all plays out in today’s Washington…

Free or “No Cost” Refinance? Do they exist?

If you’re like me you can’t go anywhere without hearing ads for FREE and so-called “No Cost” refis. If only it were that easy. The truth is, there is no such thing as a no cost refinance. The lender is simply taking a higher rebate from the bank and applying it to your fees. But how do they get this higher rebate from the lender? By charging a higher rate of course. So, even though they are paying your closing costs for you, are you getting the best deal?

If anyone is interested in HOW this works and WHY this is a bad idea, please leave a comment here. Many mortgage companies have no idea how finances work, only how to market and get the phones ringing. These people are doing Sacramento area consumers a disservice incessantly blasting this message all day, every day. But hey, they just want to sell you a loan. It doesn’t matter if it’s the right loan for you or not.

Sure a no-cost refinance sounds great, but it simply isn’t. It’s one of the worst financial decisions any of us can make.

“Walking away” from your mortgage? Maybe think twice…

With so many homeowners underwater I hear daily about people “walking away” from their homes, as if it was such an easy decision to make. Maybe it is? With it becoming so commonplace these days maybe it is an easy decision to walk away from your home and mortgage when you owe more than your home is worth. What was once considered an EXTREMELY reckless move is not only tolerated these days, it’s being encouraged… Even amongst those that currently are not behind and have no problem making their payments. Even the so-called “experts” in the media are suggesting that homeowners will come out ahead if they stop making payments on their loans. Are they right? Lets look at this from a true mortgage planner (and a financial planer’s) point of view.

Forget for a moment the vast legal and moral reasons to keep your home and make the payments you agreed to when you bought (or refinanced) it in the first place, even though those reasons have become easier to dismiss in today’s world, and realize there are some very real consequences to defaulting on your mortgage, not limited to killing your credit score and making it so you can not buy a home (and lose all of the REAL benefits of being a homeowner) for at least 2 to 3 years. In the short-term it seems obvious, why keep making payments on something that isn’t even worth the debt that is carries? One big piece of the American financial system is how much leverage is built into the housing market and being a homeowner. People who wouldn’t consider borrowing money to invest in anything else gladly pile on the leverage when it comes to Real Estate, often borrowing close to the full purchase price of the home (a great financial strategy if used correctly). Of course that is because most of us don’t have the cash to buy a home outright – and if we did it would be the worst financial decision we could make, but that is another story for another day – but however our homes are an asset like any other. Like all assets, values go up and down and leverage magnifies both losses and gains.

Lets look at a home that sold in Roseville during the height of the market in 2005 or 2006, it sold for $450,000 and the family put 10% down when escrow closed obtaining a conforming mortgage of about $405,000. Lets assume all homes in Roseville have dropped about 25% in value since, and the home is worth now $337,500. If this homeowner stops making payments and “walks away” from the home they automatically lose their $45,000 down payment, all interest paid, and principal payments as well. A huge financial loss. People looking at this option sometimes still seem to think walking away from their home and the mortgage is the right move, capping the losses there. The Sacramento real estate market is not good for sellers and probably wont be for a while and they can probably rent the nicer house next door for less than their current mortgage payment. In a simple world this makes sense, but our world is not that simple.

This decision assumes a static housing market where home prices are fixed at their current low values (real estate always appreciates when viewed over the longer-term period and we’re already seeing prices stabilize and start to rise since last Summer). Everyone knows the ABC’s of investing, buy low sell high, but just like the stock market people do it backwards. Selling on the bad news and buying when prices have come back up, in this case it’s no different with Real Estate. People are essentially “selling” low, the exact opposite of what they should. Assuming prices continue to stabilize and appreciate at a modest annual rate of 5% (the National Association of Realtors data shows average appreciation of 6% historically, even taking into account the huge drop in home prices of the last 2-3 years) until the loan is paid off in 2035, this Roseville home will be worth approximately $1,200,000. Of course this homeowner might not want to wait 25 more years, they may want to sell 10 years from now, when this home will be worth $549,750, a decent gain of more than $200,000 more than today’s value, and still $100,000 more than the original purchase price. Which we’ll remember was purchased at the height of the market back in 2005. In my opinion that doesn’t seem too long to realize a $200,000 gain compared to almost a $100,000 loss by walking away today. Especially considering this investment is your home, the place you live, where you keep your stuff, raise you kids, etc. There’s a real good chance you’d been keeping it for 10 years anyways.

Then there is the opportunity cost of walking away with home prices at the bottom of the market and likely to go up. By the time those walking away today are again credit-worthy enough to obtain financing for a new home they’ll have missed years of appreciation, low interest rates, and today’s rental rates will have gone up. Possibly stuck as a renter forever because they can’t afford the current home prices at current rates five years from now. Before long their rent will assuredly be more than they original mortgage payment was and there will be nothing they can do about it.

In the end I hope you see the case for staying in many situations, and that that case is far more compelling that first it seems. Not to mention fulfilling one’s obligations is just the right thing to do. So there is more than just financial reasons for doing so (and we didn’t even take into consideration all of the lost tax benefits of not owning a home, higher interest rates paid on all other credit and other accounts, such as utilities, chance of not getting a job, a deficiency judgment levied by the current lender, massive IRS fees, etc that we won’t have to face/lose if we make the decision not to “walk away”). If anything I recommend homeowners look into one of the government’s new refinance programs to take advantage of tofaday’s low rates, or talk to their lenders to try and get a loan modification or modified payment plan. In reality it’s the monthly payment that matters most right now, and that payment was just fine when your home was worth more, if you can get a lower payment it’s just the obvious and right thing to do.

~ Greg