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Real Estate

Home refinancing program a huge maze


May 08, 2009

The federal government's Home Affordable Refinance program is designed to help homeowners refinance their mortgages -- even if they owe slightly more than the current value of their homes.

For some borrowers, the program could be a boon. But many layers of rules may resemble one of those maddeningly complex contests that offer prizes to people who complete a maze of special offers.

The program is complicated because the federal government has a top-level set of rules; Fannie Mae and Freddie Mac have their own separate sets of rules and lenders, loan servicers and mortgage insurers generally have their own rules as well.

Borrowers may well wonder where to begin. Here's our guide to help you navigate through this labyrinth of rules:

The federal government's Home Affordable Refinance program is intended to help creditworthy homeowners whose homes have decreased in value refinance their mortgages to obtain lower interest rates or payments, lock in a fixed interest rate or eliminate onerous loan terms to improve their long-term stability as homeowners.

The program applies only to loans that are owned or guaranteed by Fannie Mae or Freddie Mac, the two secondary-market mortgage corporations that currently are operated under federal government conservator ships.

The borrower must be an owner-occupant of a detached house, condominium, duplex, triplex or four-unit residential property.

The borrower must not have made a loan payment more than 30 days late in the last 12 months or missed a payment if the loan was originated fewer than 12 months ago.

The new first mortgage cannot exceed 105 percent of the current market value of the property.

The borrower may be allowed to finance closing costs or obtain small amounts of cash.

The interest rate on the new mortgage will be a market rate.

The borrower must have sufficient income to afford the new mortgage payments.

The borrower's existing loan balances will not be reduced.

Nearly a dozen lenders have signed formal agreements to participate in this program. A list of these lenders has been posted on the Making Home Affordable Web site.

This program will end June 10, 2010.

Fannie Mae's Home Affordable Refinance program is intended to help borrowers refinance to reduce their monthly principal-and-interest payment or switch from a risky loan product such as a short-term, adjustable-rate mortgage, or ARM, or from an interest-only mortgage to a fixed-rate mortgage.

To qualify, the borrower must have an existing mortgage that is owned or guaranteed by Fannie Mae. To find out whether Fannie Mae owns or guarantees your loan call (800) 732-6643.

Borrowers can apply through any lender that has been approved by Fannie Mae. However, some borrowers may find that they need to refinance through their original lender or loan service.

The new loan may be a fixed-rate mortgage or an ARM with an initial fixed-rate period of at least five years. The payback period may be as long as 40 years.

So-called "jumbo-conforming" or high-balance loans that meet loan-limit requirements may be eligible.

Vacation/second-home and investment properties may be eligible.

The borrower may be able to finance closing costs or take out cash of up to 2 percent of the mortgage amount or $2,000, whichever is less.

The borrower must have sufficient income to afford the new loan payments. A verbal verification of employment is required.

No minimum credit score is required. However, borrowers whose credit is impaired may be offered a higher interest rate.

An appraisal may be required.

Freddie Mac's Home Affordable Refinance program, known as the Relief Refinance Mortgage, may be used to reduce the borrower's interest rate, shorten the loan repayment period or replace an adjustable-rate mortgage, interest-only mortgage or balloon/reset mortgage with a fixed-rate loan.

To qualify, the borrower must have an existing mortgage that is owned or guaranteed by Freddie Mac. To find out whether Freddie Mac owns or guarantees your loan, call (800) 373-3343.

Borrowers should contact their original lender or loan servicer to apply for this program.

The new mortgage can be a 15, 20 or 30-year, fixed-rate loan or an adjustable-rate mortgage with an initial term of five, seven or 10 years.

The property may be a vacation/second home or an investment property, with some restrictions.

The existing loan, new loan or both may be a so-called "super-conforming" loan limit within the applicable loan limit for the area.

The borrower may be able to finance transaction costs of up to $2,500.

Borrowers whose monthly payment increases 20 percent or more must provide income and employment documentation and have an acceptable credit score and debt-to-income ratio to demonstrate they can afford the new higher payment.

Mortgage rates inched higher this week.

The average 30-year fixed-rate rose 4 basis points, to 5.27 percent. A basis point is one-hundredth of a percentage point.

This week's average 15-year fixed-rate -- a popular option for refinancing -- increased by 5 basis points, to 4.78 percent.

The average jumbo 30-year fixed climbed 3 basis points, to 6.68 percent.

Adjustable-rate mortgages were split this week. The one-year adjustable-rate mortgage slid 12 basis points, to 5 percent. The popular 5/1 ARM edged up 2 basis point, to 5.07 percent.


Reach Marcie Geffner at editors(at)
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