HARP 2.0 Refinance Program Another Government Boondoggle Destined for Failure

On Monday, October 24th, to much fanfare, the Federal Housing Finance Agency announced that they were revising the Homeowners Affordable Refinance Program (a/k/a HARP).  In addition to lowering some of the costs of refinancing (which will certainly be appreciated and is helpful but is not an impediment to refinancing in most cases), the major revision was the lifting of the equity cap of 125% for “underwater” homeowners. Previously, HARP provided that a homeowner could refinance if they had up to 25% of negative equity (i.e. a 125% loan to value). 

Under HARP, which has been in effect for about 2 years, about 900,000 people have refinanced using the program. This is about 10% of the 9,000,000 people who have refinanced in the United States during that same time period. The federal government estimates that another 1,000,000 people will refinance under the new program commonly known as HARP 2.0.  I believe that at best this number will be less than half of their estimate (i.e. 500,000) and likely much less than that.  In addition, even if it is as many as 500,000, most of these people would have been eligible to refinance under HARP in any event but did not know about it or were not motivated to do so for any number of reasons.  Real estate prices nationwide have declined between 15 and 35% in most areas over the past 3 years. So, unless someone bought during the last year of the bubble and put down less than 5% (both combined representing a very small percentage of homeowners), they would have been able to refinance under HARP with the 125% loan to value allowance.  The reason they could not, other than in a very small percentage of cases, has nothing to do with the 125% loan to value.  It is the result of other factors that are detailed below and why this is destined for failure.

So why is this a boondoggle? (Note. boondoggle is defined by dictionary.com as “a project funded by the federal government out of political favoritism that is of no real value to the community or the nation”).  The short answer is because it does not address any of the 2 major shortcomings that made HARP of limited value to most homeowners who are  underwater. These are (i) subordinate loans (e.g. HELOCs) and (ii) homeowners who can no longer qualify for a loan due to changes in their credit scores, employment and/or income.  HARP 2.0 also does not address loans that are not being held by Fannie Mae or Freddie Mac. But, as this was never its intent, I will not comment on that in this post.

In addition to the 2 fundamental problems above, HARP 2.0 in touting the removal of limits on states hardest hit by the housing bust like Florida and Nevada fails to address a 3rd problem that is mostly unique to those 2 areas. These are the condominium requirements of Fannie Mae and Freddie Mac that still cannot be met.   Even if a homeowner can refinance under HARP 2.0 without regard to property values, without the removal of these requirements HARP 2.0 will be the epitome of a “paper tiger.”  Some of these condo requirements are that 50% of the units in the complex must be sold or in contract; that 70% of the units are currently owner occupied; that adequate reserves being maintained and that no litigation involving the condominium association exists.

Once again, under the theory that “doing something is better than doing nothing,”  the federal government is attempting to fix a problem that does not exist rather than the one that does.  Unless they find some way to provide incentives to (mostly) HELOC lenders so that these lenders will agree to subordinate their existing HELOC to a new HARP 2.0 loan, the program will be of little value to most homeowners.  These HELOCs were taken out by many homeowners at the time of purchase to either avoid PMI or reach combined LTVs of 95% or even 100% . They were also taken out after the purchase for renovations, other investments and recreation (e.g. vacations).

In addition, for homeowners who are current in their mortgage obligations, their existing loans should be modified without regard to their current credit, income or employment status.  Because as almost everyone who cannot refinance for any of the above reasons has said, quite logically, “if I am making my current mortgage payment I will certainly be able to make my new mortgage payment if the amount is lowered by several hundred dollars.”  They then go on to say  ”since the bank already has my loan, why won’t they let me refinance where there is no additional risk and actually less of a risk if my payment is lowered?”   Good points, good questions and very logical.  However, until the federal government starts listening to those of us in the industry who have day-to-day interaction with homeowners and to the homeowners themselves as opposed to the economists and other “so called” experts, the only laws we will have are “the laws of unintended consequences.”

LOOK OUT BELOW….Interest Rates Fall to Historic Levels

NEWSFLASH!!

       DON’T BE LATE –BEAT THE RUSH AND REFINANCE NOW! 

             As you likely have heard, interest rates have now fallen to their lowest levels in decades!. You may want to consider refinancing your current fixed rate mortgage. If you have an ARM with a few years left on it,  you may want to convert into a fixed rate loan or just lower your monthly payments by taking out another ARM.    In addition, if you have a 30 year loan and want to save on interest expense by shortening the term, you may want to consider converting it into a 20 year or15 year fixed rate loan.  

                The mortgage market is a rocky place now with difficulty navigating the waters.  Working with a reputable broker will help you navigate these waters and provide you with an advocate for your loan.  Don’t go it alone.  

                 Also, on many of our loan products our lenders offer a float-down option.  So, if the rates go down further, before you close, we may be able to lower your rate as well.  Therefore, there is no need to wait and see where the rates go to before starting a refinance.  

                 As the NY lottery says, “You have to Be in It to Win It.”  So, be a winner and contact Dan as soon as possible!

FCMC MORTGAGE CORP.

1373 Broad Street, Suite 312

Clifton,New Jersey07013

(973) 574-0900

www.fcmc.net

WHO LET THEM LOW RATES OUT, WHO, WHO?

After all the bad news that has been coming out recently about the real estate market generally and the mortgage industry, specifically, I am here to finally report some good news.  Unbeknownst to most homeowners, interest rates on conforming/non-jumbo loans (i.e. loan amounts of $625,000.00 or less) have now fallen enough that we are firmly entrenched in a refinance market. 

 Interest rates on these loans are now available in the low 4s on 30 year fixed rate loans and the low 3s on 15 year fixed rate loans.  Due to the tightening in the lending markets, banks are requiring that borrowers have good credit (with scores at least in the mid 600s) and equity of 10% or more in their homes.   In addition, borrowers will need to be able to verify their income and employment to qualify for these rates.  However, there is a government program know as HARP (Homeowners Affordability Refinance Program) that allows for refinances even when houses have negative equity!

 For anybody who purchased a home recently and has a 30 year fixed rate interest rate of 4.75% or more, it will be worth exploring the possibility of refinancing. If the monthly savings on the new loan, due to the lower rate, are enough to repay the closing costs within 2 years, it is worth refinancing.

 Also, for someone who has an adjustable rate mortgage (i.e. an ARM) that will be resetting in the next year or two, this is the time to replace it with a fixed rate loan.  Since most of those ARMs have interest rates in the upper 2s or low 3s, the fixed rates are now low enough to replace them without incurring a significant increase in payment.

 Finally, there are many people who have large balances on their home equity lines of credit at interest rates that are tied to Prime.  As a result, it is worth considering refinancing to consolidate these lines of credit with a first mortgage to lower the rate and payment. 

 All loans arranged through FCMC Mortgage Corp.  a NY/NJ Registered/Licensed Mortgage Broker with State Banking Departments and made by Third Party Lenders. NMLS Number 6654.

Low Rates, Refinancing Volumes Are Up. Get In Before It’s Too Late!

30 year-4.125% up to $417k

30 year-4.25% up to $625k

30 year above $625k-4.625% (bi-weekly to $2.5M)/4.875% to $1M (standard)

15 year-3.25% up to $417k

15 year-3.375% up to $625k

15 year-over $625k-3.625%

5/1 ARM-2.875% (up to $417K)

5/1 ARM-3.0% over $625k

7/1 ARM-3.25% up to $417k

7/1 ARM-3.375% up to $1M

10/1  ARM-4.0% up to $1M

All rates are for 45 days with 0 points and made by third party providers.  They assume credit scores of 740 and use of property as a primary residence.  Some products have loan-to-values limited to 60 or 70% (but not the conforming fixed rate loans). All loans are arranged by FCMC Mortgage Corp. a registered/licensed mortgage broker with the NYS and NJ Departments of Banking.

Thanks, Hurricane Irene-As If Closing A Mortgage Loan Was Not Tough Enough….

….it has just gotten tougher!  Due to the severity of the storm, a lot of properties suffered flood damage.  As a result, the lenders want to make sure that the property, which is their collateral for the loans, is still worth what it was before the storm.   So, they are requesting two items to confirm this.  As is the case nowadays with lender’s underwriting requirements, one is perfectly reasonable and understandable while the other is unnecessary and will continue the cycle of loan closing delays.

The first requirement (i.e the reasonable one) for any properties which are located in the storm areas (which encompasses most of the East Coast), will require an updated inspection from the appraiser to certify that the property has not been damaged and that its value is still the same.  This will involve a site visit by the appraiser, a certification from the appraiser and a review of the certification by the underwriter.  As such, it will likely delay all closings  by 1-2 weeks.   This is a fairly standard process and one that is undertaken frequently when a national disaster is declared.  An unfortunate delay, but one that cannot be avoided.

However, in the category of either (i) abundance of caution or (ii) overkill by the lenders (choose your “fill in” here), some lenders are also requiring a letter from the borrower’s insurance company indicating that no insurance claim has been filed.   Besides the additional delay this will cause to a closing, as I imagine insurance companies have a lot more important things to do right now than write letter to lenders, it is a completely excessive and onerous requirement when applied across the board! 

In the first place, the appraiser’s inspection of the premises (which I assume will include some new photos showing the structure is still standing) will indicate any and all significant damage.   At that point, based on the inspection, certification and photos, the lender can decide if any additional documentation is needed.  But, to require an insurance letter on every loan as a standard condition is a waste of time and resources (i.e. EVERYONE’s time and resources).   This is even more so when most of the damage, if at all, will be to BASEMENTS.   The most incredulous part of that, is that based on current underwriting guidelines, no value is even allocated to a basement!  So, even if that basement is unusable or destroyed it cannot have an affect on the appraised value of the house!

As a final commentary on this, why does the filing of an insurance claim have a bearing on the loan in most cases?  If someone has some minor damage and has filed a claim, then they will repair the damage.   And if there is major damage, the extent of the damage will be shown on the appraisal inspection (as noted above).   The point here is that the mere filing of the insurance claim,  is not proof of anything that will affect the collateral.   The collateral itself and the state of the collateral as evidenced by the appraiser’s inspection is that proof!  In cases where damage is indicated by the inspection, a letter from the insurance company is certainly warranted. However, as a purely prophylactic measure on EVERY loan, it is outrageous.  The fact that this will cause additional delays in most closings, is inexcusable. Or, as John Stossel would say, “Give Me A Break!”

Underwriting Times Are Increasing! Start Your Refinance Now!

If you are considering refinancing your mortgage, you should submit an application to your mortgage broker or mortgage banker as soon as you can.  By this, I mean, this week or, certainly by some time next week.  The low interest rates are causing a mini-boom in refinance business that the banks are not prepared to underwrite and close “efficiently!” 

Over the past year, the banks have shed mortgage staff in droves due to the slowdown in business.  They are not likely to ramp up now (or at least not too quickly) to account for a few weeks’ worth of refinance business.  And, when they do, there will be a tremendous learning curve for new hires (think Mt. Everest-size curve) to account for the new ”mountain” of new regulations recently passed.  This will result in delays in loan closings; further frustrations by borrowers; and, in the extreme, increased costs to extend interest rate when the rate lock periods expire due to bank delays. 

As of now, most banks are taking approximately 5 days to underwrite (i.e. approve) loans after they receive a full loan package.  This is up from 1-3 days at the beginning of August.  I anticipate that these times will increase to 10-14 days by the end of the month (assuming that rates stay this low or get lower) and, possibly 21 days, by some time in mid-to-late September.  Back in November 2010, when we had the last refinance boom, 21 days was the average underwriting time for most lenders.  And this was before Dodd-Frank went into affect on April 1, 2011 creating a wave of new disclosure and compliance requirements!  In addition, as noted above, the banks now have many less people working there than they did then.  And, finally, throw in the fact that it is the last few weeks in August when many people are away on vacation, and you have a recipe for massively slow underwriting times coming up!

5 Tips to Get the Best Deal on Your Refinance

1.   Apply NOW: Apply for your loan (i.e. forward paperwork to your broker/banker) in the next two weeks. If possible, do it this week.  Don’t wait to see if rates go lower because “the economy is terrible” and  your  ____________ (fill in the blank) “knows” they will.  Apply now and see below for a resolution of the potential lower rate problem.   You need to apply, because as the New York Lottery says, “You Need to Be In It To Win It.” And you are not in it until you start the refinance process even though you believe you are since you are “monitoring” rates.

2.  Lock at Application: Lock in your interest rate when you apply for the loan.   When you lock-in the rate, make sure that the rate lock is good for at least 60 days.  It is going to take this long to close your loan even if you it does not seem like is should!  Many brokers and internet sites entice you with lower rates but only offer a 30 day rate lock.  That has not been enough time to close for 2 years and is definitely not enough time to close now.  For example, as result of new regulations, an appraisal cannot even be ordered (let alone performed) for at least 5 days (and often for as many as 8 days) after an application has been submitted.  I want to reiterate that a 60 day lock is the minimum you need.  We lock all our borrowers now for 60 days and have for a long time. I would also ask about the cost of extending the rate beyond 60 days since you are possibly going to need a rate lock extension especially if anything unusual arises (which it almost always does now).

3.  Floatdown Option Request that the loan be locked with a bank that has a “floatdown” option.  That way, if rates go lower after you lock in your rate, you will be able to take advantage of it. But, if the rates don’t, you will not risk losing today’s low rates by gambling for a slightly lower rate in the near future.  Most lenders offer floatdowns now since they do not want to lose the loan by having the borrower go elsewhere for a lower rate.  We use lenders that offer this on 90% of the deals we close and on all of the refinances we have originated in the past month.  Note that floatdown policies differ with some lenders offering you their current rate (i.e. the lowest rate) if rates go down and others offering their current rate plus an additional amount to account for the cost of the funds.  These additional amounts are typically about .125% but can be as high as .375% above the banks’ current rate.

4.  Reputation is King: Use a reputable broker or banker (i.e. one who was referred to you by friend, family or professional).  I know that this is common sense, but maybe not so much anymore.   This is not the time to chase every last .125% by using an internet mortgage company or by getting the broker/banker to convince you to lock for 30 days because they can close in that time.  With the increased regulations, decreased staff and continually increasing underwriting turn-times, you want to make sure that you actually close on the interest rate you locked.  It does you no good to be locked at an interest rate and not be able to close on it.   Think of the old Seinfeld bit at the Chinese restaurant and the “reservation.”  Jerry and his friends could not eat at the restaurant, though they had made a reservation, since the restaurant had failed to “hold the reservation.”  Jerry then pointed out that the importance of a “reservation” was the “holding” of the reservation not the “making” of it since you cannot eat at the restaurant if the reservation was not held!   It is similar logic on interest rates where just “locking” the rate does you no good if you cannot “close” with that rate. 

5. Be Responsive:  If your broker or bank requests that you provide additional documentation, explanation letters, disclosures, etc., provide them as soon as you can.  Do this even if you cannot understand why they are needed or think the request is ridiculous (which it likely may be) .  Also, it does you no good to argue with the broker or the bank about these requests or point out to them that you “took out a loan a few years ago and did not have to provide these items“  NEWSFLASH-We know, the lenders’ know, and it doesn’t matter.  As they say in the securities industry, “past performance is no guarantee of future results.”   The past is the past. This is especially true in the mortgage business.  Since things take a long time anyway now, you don’t want to be the cause of any unnecessary delay on your refinance which may result in your rate lock expiring.  Moreover, if you respond timely to all requests and the delay in closing is mostly/solely as a result of bank delays, there is a good chance that the bank will extend your rate for a short time at their cost if you cannot close within the 60 day rate lock period.  But, if you don’t you will definitely need to pay for an extension.

Follow the above steps and you will likely be able to enjoy a successful refinance and save hundreds of dollars on your mortgage!

URGENT-Loan Amounts of $625,500-$729,250 Must Be Refinanced by September 30th for Best Pricing!

Since 2008, Fannie Mae and Freddie Mac have made loans available in amounts over the standard conforming (i.e. non-jumbo) lending loan limit of $417,000.  These loans, which are in amounts of $417,000-$729,250 are known as either High Balance Loans or Jumbo Conforming Loans.  These loans were  designed to fill part of the gap in the lower end of the Jumbo loan market that disappeared in 2008 with the collapse of the secondary  market. 

However, the original limits of these High Balance loans was only $625,500. There was a “temporary” 1 year increase of the loan limits to $729,250.  This temporary increase, which was extended year-by-year, is set to expire on September 30, 2011.  The conventional wisdom now is that the loan limits will not be increased again to $729,250.   Therefore, all loan amounts over $625,500 will be considered non-conforming or jumbo loans as of September 30th. This mostly affects 30 year, 15 year and 20 year fixed rate loans since many ARMs are portfolio products (i.e. not sold to Fannie or Freddie) and have consistent pricing up to $1M and sometimes higher.

As such, if anybody has a fixed rate loan in an amount of $625,500-$729,500 and was considering refinancing, you must do so immediately. And, by immediately, I mean this week or next week since the loan must close by September 30, 2011.    Wells Fargo has already announced that it will only honor registrations for this higher loan amount if they are in their system by the end of business on August 15, 2011.  There is a very small window of opportunity left to refinance these loans amounts, and I strongly suggest people take advantage of it before it closes!

 

Are Cupcakes and Frozen Yogurt Shops the Next Bubble?

As the stock market hits another low for the year and interest rates threaten to break the 4% “floor” soon on 30 year fixeds, it appears that the only businesses that are booming are (i) cupcake stores and (ii) yogurt places.   I live in Bergen Co., NJ and have seen 4 new yogurt shops (e.g. Red Mango, Is-A-Berry, etc) pop up within 3 miles of my home in the past year or so.  In addition, 3 new cupcake places have opened as well including 1 just this past week.  As a matter of fact, judging by the 6 or 7 new employees crowded into the tiny, yet packed, Red Mango store last night, these establishments may be the only ones contributing to the 125,000 new hires for July in today’s jobs report!

So what does this mean? Is it that all of a sudden we all have an urgent need for ice cold desserts and individual sized baked goods?   Or, can it be that everyone feels so cash poor that they are indulging in these relatively inexpensive treats?  And, if it is one or the other or both, is this a sustainable rally in desserts or just another bubble about to burst?  I am still old enough to remember the last “yogurt” bubble that occured about 10 years ago when the dueling long named yogurt companies of “I Can’t Believe It’s Yogurt” and The Countrys’ Best Yogurt (i.e. TCBY) set out to colonize the country with their frozen concoctions.  The resulting vacant yogurt stores found several years later, in the then still flourishing strip malls, became the forerunner of today’s real estate bust.  Can it happen again?  If so, will it be more severe now that the cupcake stores are involved as well?

I actually have no idea.  I also am not really concerned about this but think it is a humorous by-product of our economy.  Likely there is not such a need in the long-term for so much yogurt and so many cupcakes. But, for now, their brightly colored stores and enticing product choices, bring a smile to all those who come in contact with them.  The anticipation of the tasty treats and the choices available (especially with respect to cupcakes where I was happy as a kid to have Drake’s cakes coming in vanilla, chocolate and strawberry), are a welcome and inexpensive guilty pleasure.   In many cases they also break up the monotony and depressing landscape of abandoned storefronts in suburban downtowns. 

But, maybe, just maybe, rather than being a bubble, they will actually be the engine that drives people back to the downtown shopping areas.  Once drawn there, and seeing the hussle and bussle of the commerce occuring in these small dessert establishments, perhaps, people will want to try their hand at small business ownership again.  If they do, then slowly, one store at a time, these commercial areas will once again become viable.  Gradually, these small businesses will hire employees.  The employees will then have money to shop in the stores themselves and start other businesses of their own.  This will generate additional profits for the small business owner, who will purchase more goods and services.  It will also result in increased tax revenues so states and municipalities can restore services.  

At that point, consumer confidence will return. People will again begin to dream of homeownership and start the reversal of the residential real estate slide.    Mortgages will then flow from the rivers of the big banks as the great housing industry begins its next cycle of expansion.   Can it happen? Why not?  So, let’s all do our part and buy our cupcakes and yogurt!  Then, let’s allow our sugar induced dreams of prosperity fuel the creativity and business savy in America that have always been our driving engine of success.  Otherwise, the bursting of this bubble may mean a long term continuation of the current economic decline. And, more terrifying, without the cupcakes and yogurt we may once again be forced to return to the days of eating whole cakes and ice cream!

REFINANCE NOW-RATES ARE THE LOWEST THEY HAVE EVER BEEN!

With the huge decline in the stock market the past two weeks (and especially the past few days), the bond market has rallied causing a drop in interests rates.  If you missed the last refinance opportunity in the Fall of 2010, there is another chance now.  But, since nobody knows how long this will last, I suggest that anyone considering this contact your mortgage company as soon as possible.  As of the closing of the markets today, 30 year fixed rate loans up to $417,000 are as low as 4.25%; 15 year fixed rate loans are 3.5% and 5/1 ARMs are 3.125%. Rates on loans between $417,000 and $729,000 are not much higher.