The Veridian Blog

Brian is looking to refinance his high interest mortgages but is afraid he won't be eligible because his home value ($350,000) isn't much higher than his current loan amount of $300,000.  He also has a 2nd mortgage of about $40,000.  He doesn't have the cash to pay down the loan to get to 80% and he does not want to pay PMI.  What options are left?

Throngs of homeowners are in the same boat as Brian - hanging on for dear life with your head barely above the water.  The prospect of securing historically-low interest rates is both illusory and seemingly cruel while thoughts of short-selling quickly become reality.  For a lucky few, however, there is hope.  President Obama's Stimulus Plan (the American Recovery and Reinvestment Act of 2009) included language adopting the Making Home Affordable Program which offers homeowners alternatives to short selling or foreclosing their homes.  One of those options is the very popular Home Affordability Refinance Program ("HARP")  which allows refinances of Fannie Mae or Freddie Mac owned loans up to 125% or 105%, respectively, of the value of the home, without having to pay Private Mortgage Insurance.  This is a huge advantage.  The catch here is that the loan needs to be "owned" or guaranteed by Fannie or Freddie.  This is not the same as the name of the bank homeowner's write their check to - it pertains to the "secondary market" where all conforming loans end up purchased by either Fannie Mae (FNMA - the Federal National Mortgage Association) or Freddie Mac (FHLMC Federal Home Loan Mortgage Corporation). 

To be considered eligible, your loan needs to be $417,000 or less if originated since 2004, or $729,750 or less if originated since 2008 in most Bay Area counties.  If the loan exceeds these limits, (once referred to as "Jumbo" loans), they are automatically ineligible.  After these initial thresholds, there are more compliance guidelines for property type, occupancy, credit score and debt/income ratios that may render an applicant ineligible.  One such guideline pertains to 2nd mortgages, as in Brian's case.  Brian might be able to refinance under HARP guidelines despite having a junior lien, as long as the junior lien holder agrees to subordinate to the new HARP 1st loan - which often does not happen because the loan-to-value is so high to begin with.  The other common roadblock is if the loan is owned by Freddie - which allows new HARP loans to be originated only by the same lender that is currently servicing the loan in question.  This makes it difficult for brokers to shop rates and help out a client who is being serviced by a bank that no longer operates at the wholesale level!  

Nonetheless, if Brian is able to secure a HARP loan, he will likely have access to and enjoy over time the same rates as another homeowner with the same profile plus plenty of equity in their home.  That is what makes this new program a miracle worker - the homeowner just needs to have originated the right loan amount.  For a more complete review of your client's particular situation, please call or email us!

A client of ours recently refinanced to a 5.20%, 30-year fixed loan three months ago and now wants to refinance again due to the recent drop in mortgage rates.  She has no prepayment penalties so will there be any problems refinancing again?

With some exceptions, there will be some issues with the broker agreements we have entered into with our wholesale lenders.  There was a time, long ago, when savvy brokers perpetually refinanced clients on a no-cost basis, thereby lowering their interest rates and earning a commission time after time.  This process was called "churning" and albeit totally legal, lenders eventually realized that the loan was no longer profitable after paying out multiple commissions.  As a result, their attorneys began to include language in their broker agreements requiring a seasoning period before the same broker could pay off a loan on the same borrower.  Depending on the lender, that seasoning period could last anywhere from 90 to 180 days from funding date to funding date, or be based on a minimum number of payments made. 

Does this mean that our client will be unable to refinance?  Not at all - NONE of our loans have any prepayment penalties, so they are free to refinance with ANYONE, at any time.  If the client refinances through us (we hope), then WE would be putting our commission on the line.  If we are in violation of a broker agreement, the lender can come after us for the previous commission we made on the first deal three months ago.  If the client refinances through a different broker, than we would also be technically liable for the commission earned on the first deal (the way most early payment provisions are written).  However, any client's actions are really out of our control so it would be very unlikely for the lender to seek repayment of the commission.

Some lenders will offer exceptions to the general broker seasoning requirements if the same borrower refinances with the same broker AND the same lender (they keep the loan).  Broker commission may be limited, but at least the client stays with the broker while being able to lower their rate or improve their terms.

It looked like the recent slide in rates was coming to an end last week until Friday's Unemployment report surprised everyone with a lower-than-expected reading on new payrolls added.  The Labor Department posted May's employment numbers announcing that 431,000 new jobs were added to the economy, which was well below forecasts of 500,000, indicating that the labor market was not as strong as many had thought.  But even bigger news was the fact that 411,000 of those jobs were temporary Census workers, meaning only a net of 20,000 new permanent jobs were filled last month.  This points toward weak growth in the labor market, which is certainly good news for the bond market and mortgage rates. 

We have a light week of economic reports ahead of us, with the biggest potential report coming on Friday with Retail Sales.  This morning, equities are slightly lower and the benchmark 10-year Note is at or below 3.20%...