The Making Home Affordable Program

President Obama’s Home Affordable Refinance Program continues to evolve to make more homeowners eligible; however, many banks are still playing by their own rules. The Making Home Affordable refinance program was part of the 2009 stimulus package and was intended to help millions of underwater homeowners take advantage of today’s low refinance mortgage rates.

While the program looks great on paper banks and mortgage lenders have been hesitant to adopt HARP guidelines as the government intended. Most lenders are enforcing their own Loan-to-Value requirements ranging from 105-125 percent even though HARP 2.0 removes the LTV requirement.

Many homeowners are finding out the hard way that just because you’re qualified under the Home Affordable Refinance Program guidelines finding a lender to approve you can be difficult. Don’t worry, if you’ve been turned down for your HARP refinance there are options available to you.

HARP 2.0 & The Making Home Affordable Program

The Home Affordable Refinance Program (HARP) is a subsection of the Home Affordable Refinance Program. This program was supposed to help seven million underwater homeowners lower their payments with today’s low refinance rates. The goal is to boost the economy by stimulating spending by homeowners with lower mortgage payments.

The problem with HARP is that mortgage underwriting standards enforced by banks and lenders restrict the number of applicants being approved. In its original form the Making Home Affordable program helped fewer than one million underwater homeowners.

HARP 2.0 came along at the end of 2011 and removed the original 125% loan-to-value requirement. The intent was to reach the six million homeowners left out the original Making Home Affordable Program.

While the government refinance program guidelines have been greatly relaxed under HARP 2.0, not many banks and lenders have adopted the government’s guidelines, especially when it comes to loan-to-value, which has resulted in the latest tweak to the Making Home Affordable Program.

HARP 2.0 With a Side of Private Mortgage Insurance

Under the original Making Home Affordable Program if you had Private Mortgage Insurance (PMI) you were most likely denied refinancing. It didn’t matter if you had borrower-paid PMI or LPMI (Lender Paid Private Mortgage Insurance); if you had PMI your HARP refinance never made it to closing.

HARP 2.0 smashes the PMI barrier which means you should be able to refinance if Private Mortgage Insurance held you back in the past. While it’s true banks and mortgage lenders are still playing by their own rules when it comes to the Making Home Affordable Program, loan-to-value, and PMI, there are lenders out there that will approve your application with PMI or LPMI.

If your HARP application is denied due to PMI or your loan-to-value ratio, try reapplying with a different lender.

Community-based credit unions are an excellent starting point when shopping for HARP approval. If you get turned down for the Making Home Affordable refinance program, don’t give up. Keep applying and you will find banks and lenders willing to approve your HARP 2.0 application.

HARP 2.5 In The Works?

Rumors of HARP 3.0 seem to be left behind as members of the Senate are working to draft the Responsible Homeowner Act of 2012. This proposed legislation allows homeowners backed by Fannie Mae or Freddie Mac to essentially streamline refinance their homes. FHA homeowners have had the streamline refinance option available for years, allowing them to refinance without a home appraisal, verifying employment or documenting income.

The HARP 3.0 rumors offered a glimmer of home for homeowners with non-Fannie and Freddie backed mortgages but the proposed legislation appears to retain the requirement. Whatever form the Responsible Homeowner Act of 2012 ultimately takes the bill is a long way from being approved in the House and the Senate and being signed into law by the President. Stay tuned for more news about HARP 2.0, 2,5 and the Responsible Homeowner Act.

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FHA Mortgage Refinancing

Are you considering FHA mortgage refinancing for your next home loan? If so there are several things you need to know to avoid overpaying for your next home loan. Many homeowners think FHA mortgage refinancing protects them from unnecessary markup and junk fees; however, this is simply not the case which is why most of your neighbors are paying too much. Here are several tips to help prevent your next home loan from becoming an expensive mistake.

FHA Mortgage Refinancing Expenses

FHA mortgage refinancing is not all that different from refinancing with a conventional home loan. You’ll still be required to pay broker’s fees and closing costs with FHA mortgage refinancing but you’ll also be required to purchase private mortgage insurance. If you arrived here today because you’re refinancing your existing FHA mortgage loan you’re probably happy about the thought of losing your private mortgage insurance with a non FHA home loan. Private mortgage insurance is probably the biggest shortcoming of these home loans as this insurance adds hundreds of dollars to your mortgage payment and does nothing to protect you as the homeowner. Private mortgage insurance only protects your lender from certain types of losses if you default on your home loan.

Another problem with FHA mortgage refinancing is that many of your neighbors get a false sense of security with their FHA home loans. Just because your loan is backed by the government doesn’t mean you’re impervious to getting ripped off by unscrupulous brokers and lenders. You can still overpay thousands of dollars with this type of mortgage as any other. What you need to know about FHA mortgage refinancing is that there are literally people lurking at every corner trying to make a buck at your expense.

Broker Fees and Unnecessary Markup

If you want the best deal for your next home loan you’ll need to pay close attention to your broker fees and closing costs. Banks and brokers are notorious for marking up interest rates to boost their profits at your expense. The fee your broker collects for locking and closing your FHA mortgage refinancing with a higher than necessary interest rate is called Yield Spread Premium and according to the Secretary of Housing and Urban Development will costs homeowners like you and I sixteen billion dollars this year alone.

Unnecessary Mortgage Yield Spread Premium

Talk to most brokers about Yield Spread Premium and bring up the word “unnecessary” and you’ll quickly have them on the defensive. Don’t get me wrong… I’m not saying that brokers shouldn’t get paid for FHA mortgage refinancing, what I am saying is that they shouldn’t take advantage of their customers with unnecessary fees and markup.

You’re already paying your broker a perfectly reasonable fee for arranging your mortgage with the loan origination fee. Any amount of Yield Spread Premium that they collect from the lender is not only unnecessary but is at your expense.

Mortgage Yield Spread Premium is a kickback paid to loan originators who lock and close home loans with higher than necessary mortgage rates. Did you know that for every .25 percent that you unknowingly agree to overpay your broker pockets a 1% kickback from the lender? This unnecessary markup of your mortgage interest rate drives up your payments by as much as $1200 a year or more! Fortunately, Yield Spread Premium can be avoided if you find the right person to arrange your next home loan. You can get FHA mortgage refinancing for a flat one percent origination fee and walk away with a wholesale mortgage rate.

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Mortgage Insurance Definition

Mortgage Insurance, also known as Private Mortgage Insurance (PMI) can add hundreds of dollars to your monthly payment amount with no benefit to you, the homeowner. Here are the basics you need to know about mortgage inurance whether you are purchasing your home or refinancing an existing loan.

Mortgage Insurance is a policy you pay for that protects the lender from losses if you default on your home loan. There is no protection for the borrower from Mortgage Insurance whatsoever.

Mortgage insurance is typically required if you have less than a 20% down payment or are taking out an FHA mortgage loan. This policy is separate from your homeowners insurance and can be paid upfront or on a monthly basis. The amount of your premiums depends on a number of factors including your loan to value ratio, credit history, and type of mortgage loan. If you are already paying for Private Mortgage Insurance you can have the policy cancelled once you reach 20% equity and have all your payments current.

Private Mortgage Insurance

Private Mortgage Insurance (PMI) is an insurance policy that protects mortgage lenders from certain losses in the event of foreclosure on your loan. If you are refinancing your mortgage with less than 20% equity your lender may require that you purchase private mortgage insurance. PMI does absolutely nothing for the homeowner, it only protects the lender.

Private mortgage insurance can be expensive and add hundreds of dollars to your monthly payment; however, you don’t have to keep it forever. Once you have 20% equity in your home you can contact the lender and request that they cancel the policy. If you’ve kept your payments current most lenders will cancel PMI early once you meet the equity requirements.

There are ways to avoid Private Mortgage Insurance and save thousands of dollars in premiums. On way is to refinance your mortgage with an 80/20 loan. This is actually two loans and often from different lenders. The first loan is for 80% of the amount you are borrowing and the second covers the remaining 20%. Using an 80/20 mortgage to refinance alleviates the need for Private Mortgage Insurance if you have less than 20% equity in your home.

Cancel Your Existing Private Mortgage Insurance

If you’re stuck paying PMI on your existing mortgage, your lender is legally required to cancel the insurance once your balance drops below 78% of the purchase price. Note that is figure is based on “purchase price” and not equity in the case of rising home values; however, you can still request that the policy be cancelled once you have 20% equity if your payments are current. It might be worth your while to pay for an appraisal to prove that you meet the equity requirements to have your PMI cancelled.