Tag Archives: refinancing

Low Rates, High Obstacles to Refinancing Mortgage

As interest rates have slid over the past couple of years, Gabriel Bousbib of Englewood, N.J., refinanced his 15-year mortgage not once, but twice-cutting his interest rate in two steps from about 4.6 percent to 3.375 percent.

He’s one of a number of homeowners who refinanced just a year or two ago, but decided it was worth considering again as mortgage rates hit record lows-now averaging around 4 percent for a 30-year loan.

refinancing your home“When you’re quoting rates in the high 3s, people are saying, ‘It’s worth it to me,'” says Steve Hoogerhyde, executive vice president at Clifton Savings Bank.

“My monthly savings are going down a few hundred dollars; it adds up over 15 years,” said Bousbib, a financial services executive. “And if rates keep going down, I would refinance again.”

Refinance applications have more than doubled over the past year, though they’re not as high as in previous refinancing booms because it’s harder to qualify in the current atmosphere of tighter credit standards, according to the Mortgage Bankers Association. With the volume of home purchases still low, refinancing accounts for about 80 percent of recent activity.

Although the old guideline used to be that you should consider refinancing only when rates drop at least 2 percentage points, the new wisdom is that it can be worthwhile even with smaller drops.

“For most people, if you can shave three-quarters of a percentage point off your interest rate, it’s worth looking at,” says Greg McBride, an analyst with Bankrate.com, a personal finance website.

For homeowners who plan to stick with the same loan term and want to lower their monthly payments, the math is straightforward. Find out how much it will cost to refinance, figure out how much you’ll save each month and then how long it will take to break even. If you can save enough to offset the refinancing costs within a year or two-or even longer if you expect to stay in the house for a number of years-it’s worth considering.

Though low-interest rates are eye-poppingly low, the refinancing climate has changed from the easy-money days of five years ago. Generally, to get the best rates, homeowners need a 740 FICO credit score, well above the median score of 711. They also usually need at least 10 to 20 percent equity in the property. A recent expansion in the federal Home Affordable Refinance Program should allow refinancing this year by more so-called underwater borrowers – those who owe more than their homes are worth.

Lenders are also demanding much more documentation – including pay stubs, tax returns and bank statements – than they did five years ago, at the insistence of government regulators as well as Fannie Mae and Freddie Mac, which buy mortgages from lenders.

“You have to have a taste for doing paperwork,” says Keith Gumbinger of HSH Associates, a Pompton Plains, N.J., company that tracks mortgage data. “You’re going to be asked for lots of documents. No one loves the process to begin with, and in today’s environment, it’s even less palatable.”

These stricter requirements are simply a return to the kind of underwriting standards that prevailed before lending standards slackened a few years back, leading to the housing bust and foreclosure crisis, McBride says.

“We’re in this mess because money was too easy to get,” he says.

Refinancing costs roughly $3,000, according to several mortgage companies. That covers costs like an appraisal, title insurance, application fees, attorney’s fees and recording the mortgage. Some lenders also offer low- or no-cost options, which they can do by either adding the closing costs to the mortgage amount or charging a slightly higher interest rate.

Bousbib, for example, took a no-cost refinance with Equity Now, a New York-based lender that also lends in New Jersey. “It didn’t cost me a penny,” he says. Equity Now says it charges a slightly higher interest rate on no-cost loans.

Lowering the monthly payment is not the only reason people are refinancing. Many are shifting from a 30-year loan to shorter terms, said Matthew Gratalo of Real Estate Mortgage Network in River Edge, N.J. He has worked with clients in their 40s who hate the thought of carrying a mortgage into retirement.

“They’re looking ahead and saying, ‘I don’t want to pay a mortgage forever; can I get this done in 15 years? Can I be done with this and have it paid off?’ ” Gratalo says.

“Certainly shortening the term makes a lot of sense because you can cut years of mortgage payments,” says Carl Nielsen of Mortgage Master Inc.’s Wayne office.

Nielsen, for example, recently talked to a customer with a $375,000, 30-year mortgage at 4.5 percent. The customer is considering a 20-year mortgage at 3.75 percent. His monthly payments would go from $1,900 to about $2,223, but by shortening the life of the loan, he’ll save more than $150,000 in interest payments.

“That’s kind of a no-brainer,” says Nielsen.

Sources: Greg McBride, Bankrate.com ©2012 The Record (Hackensack, N.J.), Distributed by RISMedia and MCT Information Services.

More mortgage relief from the White House – but congressional ‘ok’ doubtful

Mortgage reliefAn summary update (by CAR.org) on the mortgage relief plan by the federal government, covering an article by The Mercury News:

In his State of the Union Address, President Obama laid out a plan to help responsible borrowers and support a housing market recovery. Details of that plan were released yesterday. However, funding for the proposed program must be approved by Congress, lowering the possibility that it will be implemented quickly. Making sense of the story:

  • Operated by the Federal Housing Administration, the plan would allow underwater homeowners to refinance into cheaper federally insured loans. Borrowers with good credit who are current on their loan payments are eligible.
  • The measure also streamlines the process of refinancing an underwater mortgage, eliminating the need for an appraisal or submitting a new tax return.
  • To qualify, borrowers must be current on their mortgage, have a minimum credit score of 580, and must be refinancing a loan on a single-family owner-occupied principal residence.
  • Lenders only need to confirm that the borrower is employed. Loans that are more than 140 percent of the home value probably would not qualify until banks wrote down part of the balance.
  • Congress must approve $5 billion to $10 billion in funding, leading housing experts to praise the plan’s objectives with skepticism of it passing this year.

Read the full story from The Mercury News here: “More mortgage relief from the White House – but congressional ‘ok’ doubtful.”

Mortgage aid open to more Calif. borrowers

A state-run program that helps homeowners struggling to pay their mortgages now has broader eligibility guidelines, opening up help to borrowers who did “cash-out” refinances and own multiple properties, said California Housing Finance Agency officials on Monday.

The mortgage-aid effort, called Keep Your Home California, so far has helped close to 8,000 low- and moderate-income households that are behind on loan payments or close to default, according to agency leaders.

Keep Your Home California“This expanded eligibility will allow more families to qualify and receive greater assistance,” said California Housing Finance Agency Executive Director Claudia Cappio, in a statement. “We are continuously evaluating our experience so far and making adjustments like these based on the initial results of the Keep Your Home California program.”

Keep Your Home California has four parts that include: mortgage help for the unemployed, mortgage aid for homeowners with documented financial hardship, relocation help for those in the midst of a short sale or deed-in-lieu of foreclosure, and reduction of principal. The programs, paid for by the U.S. Treasury Department’s Hardest Hit Fund, is costing taxpayers $2 billion.

Monday’s announced changes include:

–Allowing homeowners who completed “cash-out” mortgage refinancing to take part in the four programs. Such borrowers were excluded before.

–Allowing borrowers who own more than one property to apply. Program officials said this will be particularly helpful to those who co-signed on properties for family members.

–Offering mortgage aid to unemployed borrowers for nine months, instead of six. Such homeowners can get up to $3,000 a month. To qualify, you must receive unemployment benefits.

–Reinstating up to $20,000 in past-due mortgage payments instead of the previous $15,000 cap.

To qualify, your mortgage servicer must take part in Keep Your Home California. Click here for the list of servicers.

Info: Call 888-954-KEEP(5337) between 7 a.m. and 7 p.m. Monday through Friday, and 9 a.m. to 3 p.m. on Saturdays. Visit: www.KeepYourHomeCalifornia.org or www.ConservaTuCasaCalifornia.org.

This article is from SignOnSanDiego: “Mortgage Aid Open to More Calif. Borrowers.”

Factoring energy efficiency into a home’s value

Under the SAVE (Sensible Accounting to Value Energy) Act, estimated energy-consumption expenses for a house would be included as a mandatory new underwriting factor.

When you apply for a mortgage to buy a house, how often does the lender ask detailed questions about monthly energy costs or tell the appraiser to factor in the energy-efficiency features of the house when coming up with a value?

Hardly ever. That’s because the big three mortgage players — Fannie Mae, Freddie Mac and the Federal Housing Administration, which together account for more than 90% of all loan volume — typically don’t consider energy costs in underwriting. Yet utility bills can be larger annual cash drains than property taxes or insurance — key factors in standard underwriting — and can seriously affect a family’s ability to afford a house.

energy efficientA new bipartisan effort on Capitol Hill could change all this dramatically and for the first time put energy costs and savings squarely into standard mortgage underwriting equations. A bill introduced Oct. 20 would force the three mortgage giants to take account of energy costs in every loan they insure, guarantee or buy. It would also require them to instruct appraisers to adjust their property valuations upward when accurate data on energy efficiency savings are available.

Titled the SAVE (Sensible Accounting to Value Energy) Act, the bill is jointly sponsored by Sens. Michael Bennet, a Democrat from Colorado, and Johnny Isakson, a Republican from Georgia. Here’s how it would work: Along with the traditional principal, interest, taxes and insurance (PITI) calculations, estimated energy-consumption expenses for the house would be included as a mandatory new underwriting factor.

For most houses that have not undergone independent energy audits, loan officers would be required to pull data either from previous utility bills — in the case of refinancings — or from a Department of Energy survey database to arrive at an estimated cost. This would then be factored into the debt-to-income ratios that lenders already use to determine whether a borrower can afford the monthly costs of the mortgage. Allowable ratios probably would be adjusted to account for the new energy/utilities component.

For houses with significant energy-efficiency improvements already built in and documented with a professional audit such as a home energy rating system study, lenders would instruct appraisers to calculate the net present value of monthly energy savings — i.e., what that stream of future savings is worth today in terms of market price — and adjust the final appraised value accordingly. This higher valuation, in turn, could be used to justify a higher mortgage amount.

For example…

Read the rest of this article is by the Los Angeles Times: “Factoring energy efficiency into a home’s value“.

Obama casts lifeline to underwater homeowners

With interest rates at record lows, any homeowner with good enough credit and enough equity to can lower his or her mortgage payment by refinancing the loan.

But that option isn’t available to millions of “underwater” homeowners — people who bought their homes at or near the top of the home-price bubble, only to see their homes’ value drop below the amount they owe after home prices collapsed.

Now, the Obama Administration has unveiled a plan that will let some homeowners refinance their mortgages — and take advantage of lower interest rates — even when they owe more than their home is worth.

Among the provisions will be a measure increasing loan amounts made above the value of the home. The program is being offered under the federal government’s two-year-old Home Affordable Refinance Plan, the Federal Housing Finance Agency announced today.

Currently, the ceiling for refinancing a loan is 125% of a home’s value — for example, a $125,000 mortgage on a home worth $100,000. That ceiling would be removed for fixed-rate mortgages backed by Fannie Mae and Freddie Mac, the FHFA statement said.

Typically, you can only refinance your loan and take advantage of lower interest rates if your home is worth more than the amount you owe. After all, lenders need to have enough collateral in the home to pay off the mortgage if you stop making payments.

This has been a bind for many underwater borrowers who managed to make payments until now, but have been unable to take advantage lower rates. And being able to refinance may help many avoid foreclosure — and reduce housing’s drag on the overall economy.

According to news reports, the new plan likely will help 600,000 to 1 million borrowers refinance their mortgages. MSNBC reported, however, that is only a fraction of the estimated 11 million homeowners who are underwater.

FHFA said that details about the program should be released by Nov. 15.

But highlights include:

  • Eliminating fees for borrowers who refinance into shorter-term loans (for example, converting a 30-year loan into a 15-year).
  • Eliminating the need for a new property appraisal where there is a reliable computer-generated value estimate.
  • Waiving warranties that lenders make on loans sold to or guaranteed by Fannie Mae and Freddie Mac — so Fannie and Freddie won’t force them to buy back loans that go bad.
  • Removing the current ceiling that limits eligibility to those who owe a maximum of 25% more than their home is worth.

Two local mortgage brokers hailed the proposal as a way to help both homeowners and the overall economy.

Paul Scheper, regional manager of Greenlight Financial in Irvine, said the plan will provide a “snorkel” for underwater homeowners with good incomes and credit scores.

“Such a measure would boost the hopes of the homeowner while reducing the credit risk via lower payments of the bank,” Scheper said. “It also helps the economy because this frees up additional funds to inject back into the economy. It’s a classic Win-Win-Win.”

The best news is no appraisal and nominal underwriting rules, added Laguna Niguel mortgage broker Jeff Lazerson.

“There is a great chance each participating borrower is going to save hundreds of dollars per month on his or her house payments,” he said.

Lazerson said the program will encourage more lenders to participate because FHFA essentially promised lenders that Fannie and Freddie won’t have recourse if these loans go bad. That, he said, will increase price competition among lenders.

Lazerson believes the program will be “the single greatest program” to stabilize the housing market.

“Fewer homeowners will be mailing their keys back to their lenders,” Lazerson said. “Next thing you know, we’ll actually be spotting buyers at weekend open houses again.”

Here’s more on the proposed refinancing plan …

This article is from the Orange County Register: Obama casts lifeline to underwater homeowners

Five bright spots in the real estate recession

The real estate market meltdown was much more severe and has lasted much longer than even the most bearish housing market observer would ever have predicted. Rather than values taking a dip, they’ve taken a double dip in many places; and the housing sector drama has infected the job market and the entire world’s economy.

Yet, there are some very shiny silver linings to this whole mess — a handful of ways in which our mindsets, habits, behaviors and approaches to money, mortgage and even life decision-making — have been changed by this real estate market debacle. As I see it, here are the five best things about this housing recession:

1. People now buy for the long term

Even Jeff Lewis, that reality TV house flipper extraordinaire, has declared that he’s tapped out of the flipping business for the foreseeable future, trading in his real estate wheeling and dealing for the design business.

Recently, he mentioned having lost six homes in the real estate market crash.

While Lewis flipped homes as his business, just five years ago, many Americans — homeowners and investors alike — took a short-term view on their homes, buying them with the idea that they could count on refinancing, pulling cash out or even reselling them anytime they wanted, at a profit.
Reality check — those days are gone. Now, buyers know they’d better be prepared to stay put for somewhere between seven and 10 years (shorter in strong local markets, longer in foreclosure hot spots) before they buy if they want to break even. And this is causing them to take mortgages they can afford over time, and make smarter, longer-term choices about the homes they buy.

2. Dysfunctional properties are being weeded out and creatively reused

real estate market recessionMunicipalities like Detroit and Cleveland are demolishing blighted and decrepit properties in dead neighborhoods en masse, intentionally shrinking their cities to match their shrinking populations. These efforts are also eliminating breeding grounds for crime, and focusing resources on the neighborhoods that have a better chance of surviving and thriving in the long term.

In the so-called “slumburbias” of central California, Nevada and Arizona, McMansions are being repurposed into affordable housing for groups of seniors, artist communities and group homes.

3. American housing stock is getting an energy-efficient upgrade

The news would have you believe that every American has lost his or her home, walked away from it, or is now renting by choice. In fact, the vast majority of homeowners have simply decided to stay put.

Instead of selling and moving on up, homeowners are improving the homes they now plan to stay in for a long(er) haul. And this generation of remodeling is focused less on granite and stainless steel, and more on lowering the costs of “operating” the home and taking advantage of tax credits for installing energy-efficient doors, windows, water heaters and more. And while the first-time homebuyer tax credit is a thing of the past, the homeowner tax credits for energy-optimizing upgrades are in effect until the end of this year.

4. People are making more responsible mortgage decisions, and building financial good habits in the process

Buyers are buying far below the maximum purchase prices for which they are approved. They are reading their loan disclosures and documents before they sign them. And, thanks to the stingy mortgage market, they are spending months, even years, in the planning and preparation phases before they buy: paying down their debt; saving up for a down payment (and a cash cushion, so that a job loss wouldn’t be disastrous); being responsible and sparing in their use of credit to optimize their FICO scores; and creating strong financial habits in one fell swoop.

5. Our feelings about debt and equity have been reformed

Americans no longer use their homes like ATMs, to pull out cash, pay off their credit cards and then start the whole overspending cycle over again. Many can’t, because their homes are upside down and cannot be refinanced in any event — much less to pull cash out.

Others have been reality-checked by the recession, and are dealing with their non-mortgage debt the old fashioned way: by ceasing the pattern of spending more than they make, and applying the self-discipline it takes to pay their bills off.

Home equity, in general, is no longer viewed as an inexhaustible source of cash. Rather, we see it as a fluctuating asset to be protected and increased — not so much through the vagaries of the market, but through the hard work of paying the principal balance down. Many of those refinancing into today’s lower rates aren’t doing it to pull cash out, as was the norm at the top of the market; instead, they are refinancing into 15-year loans to pay their homes off sooner than planned, or reducing their required payment so their extra savings can be applied to principal.

Of course, it remains to be seen how lasting these changes will be if and when home prices go up and mortgage guidelines loosen up. But since neither of these things look likely to happen in the short term, hopefully there’s a chance that these behavior shifts will become part of a permanent mindset reset for American housing consumers.

Tara-Nicholle Nelson is an author and the Consumer Ambassador and Educator for real estate listings search site Trulia.com. ClientDirect.net.