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Mortgages: Expanding a Federal Refinancing Program

The biggest change to the plan, called the Home Affordable Refinance Program, or HARP, raises the debt limit at which such borrowers can obtain a new mortgage. Those who owe more than 125 percent of their home’s value are now eligible; the previous limit for many government programs was 97 percent to 125 percent. The percentage ratio is known as loan-to-value, or LTV. The government also reduced some fees.

While homeowners moving into fixed-rate mortgages will have no ceiling on their loan-to-value ratio, those who are sticking with an adjustable-rate mortgage will have a limit of 105 percent, said Jack Guttentag, a retired finance professor who now writes and runs a Web site called the Mortgage Professor. (ARMs are allowed if the initial rate is fixed for at least five years.)

The expansion could more than double the number of people who have refinanced under the Home Affordable Refinance Program, which in the first two years has helped 900,000 borrowers, according to the Federal Housing Finance Agency. This could mean one million refinancings in 2012, and a similar number in 2013.

The expanded program, dubbed HARP 2, could be “a potential lifeline for people who are underwater,” said Michael Bizenov, an executive vice president of Sterling National Bank, which has branches throughout New York and Long Island. But Mr. Bizenov and others say the program is getting a slow rollout.

You must meet three basic criteria to qualify for a HARP 2 refinancing:

¶Your mortgage must be owned by Fannie Mae or Freddie Mac, and must have originated on or before May 31, 2009. (Each has a Web site page that will check your address for eligibility.)

¶You must have been current on your mortgage for at least six straight months and have had at most one late payment in the last 12 months. If you are uncertain, check with your servicer or look on your statements for any late charges.

¶Your loan-to-value ratio must be above 80 percent, and you cannot have previously refinanced under HARP.

The next step is to visit your current lender’s Web site or office to start the discussion. “They’re the first ones who could help you if you’re eligible,” said Erin Lantz, the director of the Zillow Mortgage Marketplace, which has a tool that lets owners see if they qualify.

Some lenders started offering HARP 2 loans this month, while others will not begin until January. John Forlines, the vice president and chief credit officer for single-family product at Fannie Mae, said it would be fully rolled out by most lenders by mid-March.

Bank of America, one of the nation’s largest mortgage lenders, has already instituted the lower pricing and fees on HARP 2 mortgages and will begin making the higher loan-to-value refinancing in January, said Terry Francisco, a senior vice president. Wells Fargo, another big lender, said it would be “some time” before it started the expanded program.Both Fannie Mae and Freddie Mac will waive many closing fees for owners refinancing into a 15- or 20-year HARP mortgage. This could save borrowers charges ranging from a quarter of a percentage point to two percentage points of the loan amount, though banks are free to set their own fees.But going to a 15- or 20-year mortgage from, say, a 30-year mortgage or an interest-only one in an effort to build equity faster could set off a closer review of your finances if your monthly payment increased by 20 percent or more, Mr. Forlines said.

Article source: http://feeds.nytimes.com/click.phdo?i=d23fd06cb8d2d5c58fb9daeb3e23afcf

Mortgages: Avoiding Refinancing Costs After Divorce

There is another, little-known option that can avoid refinancing and its costs, which generally run 3 to 6 percent of the outstanding loan principal, according to LendingTree. You simply ask your lender to remove the former spouse’s name, leaving the loan note in your name only.

The problem is that not all lenders or mortgage servicers offer this option, known as release of liability. The lenders and servicers that do will most likely run a separate credit check on you — requiring, for example, that you meet minimum credit scores (typically from Fannie Mae, the giant government buyer of loans), and ensuring that you are current with the monthly mortgage payments. They may also require that any investors in the loan, after it is sold off, agree to the deal.

And if you are “under water,” and owe more on the mortgage than the home is currently worth, this process is not an option.

“This is a common and often messy business,” said Jack Guttentag, a mortgage expert and emeritus finance professor at the Wharton School of Business at the University of Pennsylvania. “Lenders seldom have a reason to take a co-borrower’s name off the note.”

But, he added, if a homeowner can prove that he or she can afford the payments and meet the required credit criteria — typically those of the investor in the loan — then release of liability may work.

Neil B. Garfinkel, a real estate and banking lawyer at Abrams Garfinkel Margolis Bergson in New York, says the lender “will require the borrower to prove that the borrower is able to support the monthly payments without the co-borrower spouse,” typically through monthly bank statements, annual tax returns and investment statements.

Having the name removed protects the credit of both parties, actually. If the former spouse failed to pay other debts, a lien could be placed on the home, and if you were delinquent on the mortgage payments, your former spouse’s credit could be hurt.

Most divorce settlements stipulate one of two outcomes for marital property. Either the house must be sold, or the person wanting to keep the property must buy out the other’s share, usually within months of the date of the settlement, and get the other party’s name off the mortgage — either through refinancing or a release of liability — typically within a year.

Under the second option, the former spouse signs a quit-claim deed at the divorce settlement, relinquishing his or her claim to the property. But while that action takes the former spouse off the house’s title and leaves it in one name only, it does nothing to remove his or her name from the actual mortgage.

Lenders or servicers typically charge $300 to $1,000 to execute a release of liability and require the property owner to pay an additional, nonrefundable application fee, typically $250 to $500. The process can take from 30 to 90 days, mortgage experts say.

One mortgage servicer, PHH Mortgage of Mount Laurel, N.J., requires that a homeowner with a loan sold to Fannie Mae have a minimum FICO credit score of 620 and a debt-to-income ratio of 50 percent or below (the ratio measures the amount of gross monthly income that goes to paying off all debts).

Still, a lender or servicer “generally has no obligation to release one of the borrowers,” Mr. Garfinkel said.

But Mr. Guttentag says homeowners may have one point of leverage. He suggested that qualified borrowers not accorded the release they seek tell their servicer or lender that unless a release of liability can be executed, the borrower will refinance the mortgage — at another lender.

“In such cases,” he said, “the servicer might agree to do it.”

Article source: http://feeds.nytimes.com/click.phdo?i=a964a1742ded2db7bb0d4ba67105cc68

Mortgages: Expanding a Federal Refinancing Program

Mortgages: Avoiding Refinancing Costs After Divorce

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