Real Estate Home Mortgages/HARP refi
Hi Mr. Giannamore,
I have a question about a HARP refi. I now have a 30 year fixed mortgage at 6.5 percent. I owe 140000 on a property that is now worth about 90000. I pay 170 per month for PMI. I have good to excellent credit. I have been told by two lenders that I qualify for a HARP refi; however the cost are in the 8000 range to bring my rate down into the 3.5 range. I’m being told my PMI payments are too high (see the lender explanation below).
“In order to be in compliance, your rate and APR must be below a certain threshold. This lets the state and any auditors know that the company doing the loan is not a predatory lender and is giving you a good loan. The APR includes all fees and costs associated with the loan, including your PMI. The issue we are running into is that the PMI is so high (and therefore the APR is too high) that it is flagging the loan as a high-cost loan. This is a big no-no for a mortgage because it does not comply with State rules and regulations. The only way to get the APR lower is to bring down the rate, which in turn lowers the APR.
With a Freddie Mac loan, the lowest rate that we have is 4.125. In order to make this work you would have to buy the rate down to the low 3’s.”
I’m looking to see what an independent expert has to say about this. 5000 would be tacked onto the loan, and I would pay 3000 up front. It really seems excessive. I’m planning to stay in the home long term so I’m inclined to go along. Sorry for the lengthy question, but I’d really value and appreciate your take on this.
I know this is probably more confusing then you'd wish it to be but let me give you some information that might be helpful for you to understand a little better.
First, thing is that it took many months for the government to create the Home Affordable Refinance Program (HARP#. This was because they #Government)really were not focused or concerned initially with borrowers who were current on their mortgage payments, but rather the ones who were not because these where the ones walking away. So they first began to focus on delinquent borrowers. What then began to happen was that the borrowers who realized they could not refinance because they were upside down, they began becoming late which then moved them into being able to modify their mortgages with no closing costs and at rates as low as 2% with no appraisal or credit score requirements. Borrowers where force to take these drastic actions so in an attempt to stop this practice the government was force to come up with something to appease these borrowers. Most had very little to lose because their home values had plummeted, which is exactly where you are at now. The good news is that they did finally come up with the HARP program, and although it is something its not really the best the government can really do in my opinion.
When the government first came up with HARP borrowers had a very hard time qualifying because they limited the total loan to value to 100%, then a few months later increased it to 115%... making matters worse some lenders would put overlay's on their guidelines even though the government would allow for more, they would put a lower limit. There are lenders now that will go as high as 175% LTV which is great for borrowers who are very upside down. That being said the higher the LTV the more (ADD ON# or price adjustments required. You see, what is not explained to borrowers is that the only entity now being able to make more on a borrower is the Federal Government. They made it illegal for lenders and originators to charge additional fees on loans and the only ones who can now is the Federal Government. What I mean is that lenders, who offer these types of programs must add additional costs onto a loan to pay the Federal Government. The biggest two areas that will impact your final HARP price are the final LTV and your lowest middle credit score. Before 2008 if you had a 659 credit score or a 740 credit score your terms would be the same, now if your score is not above 740 and your LTV is not lower than 60% the federal government requires ALL lenders to put these #"add on’s) or pricing adjustments to the final loan price, which ultimately increases your APR. Banks and mortgage companies very rarely will provide this detailed information, but we as the professionals, are left with trying to explain to borrowers about why the rates they see advertised they can't get them... because of the federal government over-lays/price adjustments.
So, even though the federal government owns the underlying mortgage security, which is a requirement for you to even be considered for the HARP program, they are really not going out of their way to help you out by giving you the lowest possible pricing they can. They have all their add on pricing which ultimately bumps the final pricing and APR on your loan.
This is where the real problem occurs. There are a number of states throughout the country who have implemented a rule called, (NET Tangible Benefit). This is a state level formula used to help determine if you are truly benefiting from refinancing your mortgage. Many states have implemented this law to help protect borrowers who can't determine for themselves the benefit of refinancing. If it is determined that there is no net tangible benefit based on the states rules, they it is against the law for the lender to refinance your mortgage. Also to make matters worse is that there is another formula used by which is mandated by the Federal Government called "Section 35 High Cost Loans". If your loan is deemed a high cost loan many lender will not participate because they will be labeled a subprime lender. We know most of the high cost is a direct result of the pricing adjustments implemented directly by the Federal Government themselves... It is an unintended consequence of all the legislation passed in the wake of the mortgage problems we've had to deal with in the past 5 years.
The best advice I can provide, if you have not yet done so, is to contact your current mortgage company as they often can provide different pricing options because they are currently servicing the mortgage. The government does give different adjustments to the current serving mortgage companies so you may be able to do a little better.
Should you have any other questions please feel free to post.
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