Dennis' Mortgage Blog

Question of the week:  Are there refinance options if I am upside down on my mortgage?

Answer:  Yes there is, the FHA Short-Refinance program is available, and has recently been revised.  There are several conditions that must be met for the applicant to eligible for the program according to the FHA Mortgagee Letter titled “FHA Refinance of Borrowers in Negative Equity Positions”.  First and foremost the existing lender MUST be willing to reduce the amount of their principal balance by 10% or more, no reduction on current mortgage balance no go on the short-refinance.

Here are some of the other conditions that must be met:

1. The homeowner must be in a negative equity position;

2. The homeowner must be current on the existing mortgage to be refinanced;

3. The homeowner must occupy the subject property (1-4 units) as their primary residence;

4. The homeowner must qualify for the new loan under standard FHA underwriting

requirements and possess a "FICO based" decision credit score greater than or equal to 500;

5. The existing loan to be refinanced must not be a FHA-insured loan;

6. The existing first lien holder must write off at least 10 percent of the unpaid principal balance

7.  The refinanced FHA-insured first mortgage must have a loan-to-value ratio of no more than

97.75 percent;

8. Non-extinguished existing subordinate mortgages must be re-subordinated and the new loan

may not have a combined loan-to-value ratio greater than 115 percent;

9. FHA mortgagees are not permitted to use premium pricing to payoff existing debt

obligations to qualify the borrower for the new loan;

10. FHA mortgagees are not permitted to make mortgage payments on behalf of the borrowers

or otherwise bring the existing loan current to make it eligible for FHA insurance; and

11. The existing loan to be refinanced may not have been brought current by the existing first

lien holder, except through an acceptable permanent loan modification as described below.

If you are upside down, are current, occupy the property, do not have a FHA mortgage, and your existing lender is willing to reduce your loan balance by at least 10% and enough to get to 97.75% loan to value (which may require a reduction greater than 10%) they you may be eligible for a FHA short-refinance.

Regarding the lender reduction, reducing the balance at least 10% and/or to 97.75% of the current value costs them a lot less than if they were to approve a typical short-sale transaction with all the costs associated with a sale taken from the current principal loan balance.

Have a question for me?  Ask me!

This week was like old times.  The Mortgage Backed Securities market fluctuating in big moves on Wednesday, Thursday and today took me back to the Spring.  This is the first week in sometime we have seen several days with really big swings in prices, and rates.  It seems investors are wanting to be optimistic given the mostly positive news on profits from the corporations, but then look at underlying debt obligations and continued job losses and change their minds.

One beneficiary of the debt markets has been corporate bonds.  A recent article in the Wall Street Journal discussed how major corporations such as IBM, MacDonalds and Johnson & Johnson have sold bonds at rates below what many European nations are paying, and not much above what the U.S. government issues are giving investors.  It seems “flight to quality” includes historical U.S. Blue Chips.  Does this mean investors have more confidence in getting repaid by Ronald MacDonald in ten years than the Spanish or Greeks?  Yes, it does.

Not a good month so far for jobs.  Yesterday the Labor Department announced 500,000 applicants signed up for first time unemployment benefits, on top of the 484,000 filings the week before that totals almost one million newly unemployed in two weeks.  Not a sign that the economy is recovering, in fact quite the opposite.  As the campaign rhetoric heats up with ten weeks until the mid-term elections I am listening to hear who is saying what needs to be done to get private sector employment to grow.  I really don’t care about green jobs unless green means salary, as in money being paid to workers.  I really don’t care about health care reform, unless the reform is a change in regulations that will increase the number of private sector jobs in health care.  I really don’t care about Cap and Trade, unless it means a cap on more public sector jobs and those jobs being traded for more private sector employment.

It’s all about the Jay-Oh-Bee.  Until a very good portion of the eight million Americans out of work are back at work the problems most politicians want to talk about cannot be solved.  Budget deficits get worse without income tax from ordinary workers, sales taxes from consumers with jobs to buy goods and services and property taxes from home owners with jobs able to continue to pay their mortgages and property taxes.  Off my soapbox.

Rates for Friday August 20, 2010:  Markets made a good move down on the Fed’s pessimism but profit takers jumped in with both feet yesterday and kept rates pretty flat from last Friday.

FIXED RATE MORTGAGES AT COST OF 1 POINT*

30 year conventional 4.00%                              Flat

30 year conforming-jumbo 4.375%                   Flat

30 year FHA    4.00%                          Flat

30 year FHA jumbo 4.37                                 No Change

Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. 

Please note that rates quoted are based on average of several lenders for a purchase transaction with 20% down payment with an impound account for taxes and insurance and a minimum FICO score of 740; APR is not quoted as it is dependent upon specific loan amounts, lenders and services selected.  Numbers provided are for comparative purposes only.

Hope you are enjoying the last few weeks of summer before it’s back to school time!

Have a great week,

Dennis