Overturning Government Refinance Program Denials

Has your FHA Streamline, HARP 2.0, or VA IRRRL government refinance program application been denied? Despite easy qualification guidelines for streamline refinance programs many lenders are enforcing investor overlays, which are their own rules for approval. If your application for any of these government refinance programs has been denied thanks to overlays here’s what you can do to get your mortgage application approved.

Streamline Refinance Programs For Everyone

Until HARP 3.0, also known as #myrefi is approved there isn’t a streamline refinance program available for everyone. The three programs out there cover millions of homeowners; however, if you meet the minimum requirements to qualify you could still find your lender denying your application for streamline refinancing.

Here’s a quick rundown of the government refinance programs available today.

HARP 2.0 For Fannie Mae & Freddie Mac

If your mortgage loan is backed by Fannie Mae or Freddie Mac and you have very little or no equity then the Home Affordable Refinance Program (HARP version 2.0) is for you. As long as you’re current on you payments and Fannie Mae or Freddie Mac got ahold of your mortgage before June 1st of 2009, you should be HARP eligible.

HARP 2.0 removed the 125% loan to value ratio requirement to be eligible; however, most lenders are enforcing their own loan to value requirements as low as 105% in some cases.

The problem is that many lenders use these so called investor overlays to protect themselves from bad home loans. The government levies stiff penalties against lenders for writing bad home loans with any government refinance program so there is still significant risk for lenders with streamline mortgage refinancing.

FHA Streamline & VA IRRRL Mortgage Refinancing

If you have an FHA or VA home loan you won’t be HARP eligible because the FHA and VA have their own streamline refinance programs. Not having late payments is a common theme with any government refinance program so as long as you don’t have any 30-day late payments you should qualify despite credit, income, employment status or loan to value ratio. The VA streamline refinance works the same way and is called an Interest Rate Reduction Refinance Loan. The problem here again for both FHA streamline and the VA’s IRRRL are investor overlays.

Streamline Mortgage Refinancing Difficult

Existing government refinance programs are intended to make streamline refinancing widely available to American homeowners; however, very few are getting access to these programs. Many, but not all mortgage lenders enforce their own guidelines well above and beyond what the government requires.

These special rules are the investor overlays I mentioned earlier and include minimum requirements for credit score, income verification and even loan-to-value ratios.

The Government Wants to Stop Lender Overlays

The Federal Housing Finance Agency and the Federal Housing Administration have expressed concern that lender overlays are preventing homeowners from taking advantage of today’s low refinance rates. While there is no public policy regarding overlays HARP 3.0 is rumored to include lender indemnification to reduce risk and eliminate these investor overlays.

You can’t really blame lenders for enforcing their own rules. Penalties on a single bad FHA home loan can be in excess of a million dollars and with the current system all of the risk falls squarely on the lenders’ shoulders. If the government offers banks and lenders indemnification it would limit or completely eliminate risk for the most recent lender making overlays unnecessary.

How to Get Your Government Refinance Approved

Program overlays vary from one lender to the next so if you’re denied the best thing to do is shop around. Smaller community based or military credit unions like Navy Federal Credit Union or USAA are an excellent starting point when seeking approval rather than mega banks like Wells Fargo or Bank of America. This is true of any government refinance program from the FHA, VA or USDA. If first you’re not approved, just keep applying.

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What is Streamline Refinance?

If you’re considering refinancing you’re likely to run across the term Streamline Refinance. What is a streamline refinance and does it apply to you? Despite government refinance programs like HARP 2.0, many people are having trouble qualifying for mortgage refinancing. Streamline refinance is a quick and easy alternative to mortgage refinance loans with lower costs and qualifications. Here are the basics you need to know if a streamline refinance is available to you.

Streamline Refinance Definition

The term streamline refinance usually applies to FHA home loans. The VA and USDA have their own refinance programs with different names but I’ll get to those in a moment. Streamline refinance is a way of taking advantage of today’s low refinance mortgage rates with less legwork and paperwork than conventional mortgage refinancing. For some homeowners this will be an option where their application would otherwise be denied.

There are requirements that must be met to qualify depending on the program. With the FHA for example, there must be a tangible benefit to refinancing. Lowering your interest rate, changing from a fixed rate mortgage to an adjustable rate mortgage or lowering your term length from 30-years to 15-years are all examples of tangible benefits.

In addition to demonstrating tangible benefit you must be current on your payments. There are government programs for homeowners who are unable to make payments (the Home Affordable Modification Program HAMP is one such program); however, with any government refinance program you must not have late payments.

Streamline refinance programs will not allow you to take cash out. If your goal for mortgage refinancing is to borrow against your home equity a streamline refinance is not the program for you.

FHA Streamline Refinance Program

One of the advantages of an FHA streamline refinance is that income and employment verification may not be required. There are also minimal credit requirements to meet; although, the FHA is toying with the notion of not approving homeowners that have active collection accounts on their credit reports.

President Obama lowered mortgage insurance premiums for FHA Streamline Refinance to make the program available to more homeowners.

Streamline refinance programs cut through red-tape and allow for less paperwork, faster underwriting, and lower fees. In most cases you will not be required to pay for a new appraisal. This is a rundown of the guidelines set in place by the FHA. Individual lenders can impose their own requirements so if your existing lender is giving you a hard time you can kick them to the curb and find another lender.

If your existing mortgage is an FHA home loan and is in good standing you can lower your payment and save a lot of cash at closing with the FHA streamline refinance. If you’re not with the FHA check with your lender as many offer similar programs.

VA Streamline Refinance

The VA doesn’t call the program by this name; however, the agency’s Interest Rate Reduction Refinancing Loan (IRRRL) does the same thing. The Veteran’s Administration has the same basic rules for the IRRRL program and taking cash out is not allowed. You will not need a new appraisal or income/credit verification and you have the option of rolling your closing costs into your balance. You don’t need to get a new certificate of eligibility from the VA so the process is much quicker.

HARP 2.0 Program Requirements

HARP isn’t a streamline refinance program but a government refinance program for underwater homeowners. The program requirements under HARP 2.0 allow for unlimited loan-to-value ratios; however, we’re finding that many lenders are imposing their own LTV requirements. If you’re finding your HARP application is still being denied because of your LTV try shopping around for a different lender. Community based credit unions are an excellent starting place as they have less stringent in-house underwriting requirements.

The basic requirements for the Home Affordable Refinance Program (HARP 2.0) are that your home loan is owned by Freddie Mac or Fannie Mae and they must have purchased it before May 31st, 2009. You must have less than 20% equity in your home to qualify for HARP. Lastly, you must be current on your payments with zero late payments in the last six months and only one late payment in the last year.

HARP 2.0 doesn’t have the same advantage as a streamline refinance when it comes to the paperwork and lender fees so it’s important to shop around comparing things like the origination fee.

Shop Around for the Best Deal

No matter what type of mortgage refinancing you’re in the market for it’s important to shop around for the best mortgage lenders. One of the most common mortgage mistakes is focusing only on getting the lowest refinance rates at the expense of fees.

Overpaying the loan origination fee or paying unnecessary discount points will make it much more difficult, even impossible to recoup your out-of-pocket expenses. If you don’t break even on your closing costs you’re going to be losing money no matter how great your interest rate.

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You can learn more about getting the best deal on your next home mortgage loan while avoiding lender junk fees and points by checking out my free Underground Mortgage Videos.

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