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!