Mortgage Insights Blog

Under the new Making Home Affordable refinance program, the Obama Administration is hoping that more homeowners can take advantage of the historic low interest rates offered on 30 year fixed rate mortgages while the Fed is still actively buying the market.  They are targeting homeowners that are current on their mortgage payments but may not be able to take advantage of the historically low interest rates now offered due to a decrease in their home's value. Homeowners must still meet income and credit qualifications but can now refinance their first mortgage as long as it meets the following criteria: 

• First - the current loan must be owned by Fannie Mae or Freddie Mac. Remember, even though your loan is currently being serviced (the act of collecting your monthly mortgage payments) by a bank - Wells Fargo, Countrywide, American home Mortgage, etc. – lenders will sell your loan in the secondary market to replenish their reserves in order to continue originating new mortgages. The majority of these loans end up being purchased by Fannie Mae and Freddie Mac, or by Wall Street investors, and if your loan was purchased by Fannie or Freddie your loan will qualify for the new program. To determine if your loan is owned by Fannie Mae or Freddie Mac please go to their respective web sites and fill out the on-line inquiry forms – Fannie Mae: http://loanlookup.fanniemae.com/loanlookup/ and Freddie Mac - https://ww3.freddiemac.com/corporate/

  Second – the new program will allow you to borrow up to 105% of your home’s current value without requiring any mortgage insurance, and if you already have mortgage insurance it will transfer to the new loan without any increases to your premium. To get an approximation of your home’s value try www.zillow.com or www.cyberhomes.com

  Third – Credit requirements still remain strict – borrowers must be able to prove income and assets under a full documentation mortgage application, meaning borrowers must be able to provide tax returns and pay stubs to prove their incomes as well as have sufficient credit scores (680+ with no 60 day late’s in the past 12 months).

  Fourth - This program will only be eligible for first loans that fall within Fannie Mae and Freddie Mac loan amount guidelines (loan amounts up to $729,750 for Santa Clara County). For a loan amount look up in your county go to:

  Fifth – If you have a 2^nd mortgage then the 2^nd lender must be willing to re-subordinate to the new mortgage - You may have a 2^nd mortgage that will not be counted in the calculation when determining your new loan to value (up to 105% allowed) and that 2^nd mortgage must agree to re-subordinate behind a new first mortgage. Most 2^nd lenders are cooperating, especially those who have received Federal bail-out money (Wells Fargo, Chase, WAMU, CitiBank, Suntrust, etc.) but others are not and there is no way to pressure them into agreeing.

  Sixth – Will the new refinance improve your current housing payment situation? You will not be able to consolidate your first and second mortgages or any other debts – only first mortgages are eligible for the program without providing any cash-out, however, the government is working on a similar program for 2^nd mortgages. Expected Interest rates offered through the program - current interest rates offered for a new 30 year fixed rate mortgage through this program are between 4% and 5% for loan amounts of $417,000 and below and between 5% and 6% for loan amount above $417,000 to $729,750

If you are interested in discussing the above criteria or about finding a possible solution to your current financing please feel free to contact me and we can schedule an appointment to review your financial information. For additional resources please feel free to view the government's website - http://makinghomeaffordable.gov/

That’s the issue – Lenders want the housing market to recover before they open up up the lending markets. Mortgage guidelines will not loosen until the housing market and the overall economy shows signs that we are well into a recovery. And the housing market will likely not see a strong recovery until homeowners can avoid foreclosure, by refinancing out of risky high interest loans, and buyers can start purchasing with more aggressive financing terms.

So what comes first – the chicken or the egg?

This is the current dilemma we’re facing but there are some positive measures being taken, for instance the government is trying to intervene by providing historically low interest rates. The Fed has been spending billions of dollars buying up the secondary mortgage market and providing tax credits to first time homebuyers to spur purchases. And in an attempt to keep current homeowners in their homes they are offering loan modification programs and refinance programs for people that can prove their income and prove they can afford their housing payments under modified terms - see Making Home Affordable program.

What we are witnessing in our local market area, throughout Silicon Valley, is that most homeowners who purchased between 2004 and 2006 have larger loan amounts than allowed through the government's current housing affordability programs, and the lenders and investors whom own these mortgage notes do not have any financial incentives to work with these high loan amount borrowers other than to avoid repossessing their homes through a costly and very lengthy (thanks to CA politicians) foreclosure process.

But until these lenders and investors realize how to communicate internally in order to quickly help homeowners with a modification or short sale in lieu of foreclosing on them, we probably will continue to see the higher-end local housing market suffer. Just to demonstrate the lack of communictaion taking place in the jumbo mortgage market, loan servicers are reluctant to offer defaulting homeowners payment plans or modifications to their mortgages without the underlying mortgage-note holder's (investor) permission as they do not want to be sued by the investors. Adding to the confusion is that these underlying investors can be anything from a small community bank or credit union on the east coast, to international investors, or even small groups of money market funds - making communication a seemingly impossible feat.

And while banks are still foreclosing on these larger, more aggressive loans, they will not start providing funds for new loans until things have stabilized. The government’s financing intervention can only provide mortgages up to $729k in our area leaving the higher end homes – like those in Willow Glen area – out of reach for the majority of high-end buyers. Any homes selling for above $800k will require true “jumbo” financing and requires a large down payment (up to 30%) which most buyers are just afraid of making in the current downward housing market. And jumbo loans have even more stringent guidelines than their conforming loan counterparts.

The good news is that the bottom of the housing market in our immediate area is starting to rebound nicely as first time homebuyers and investors are gobbling up inventory. First time homebuyers are finding that affordability has returned to the housing market, especially when they can own a home for just about as much as it would cost to rent these days, taking into consideration their mortgage interest deduction of course. And investors are now able to purchase homes, with 20% down, and immediately realize positive cash flows from their investments.

We are especially experiencing this in areas such as Santa Teresa, Blossom Valley, Cambrian and Campbell. The median home prices in these areas has fallen enough to allow first time homebuyers higher affordability which is causing bidding wars to break out on many bank owned foreclosure sales.

Hopefully the demand for housing in theses areas continues to eat up any additional supply which will eventually bring price stability to the higher end homes.