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1. President Obama: A HARP-like program needs to be available for underwater homeowners who do not have a Fannie Mae or Freddie Mac mortgage.
2. Mr. Watt: HARP needs to be available with unlimited loan to value, the way the guidelines state.
And for both programs, stress the idea of a shorter term at the lower refinanced rate, the quickest way to re-gain equity.
Dear President Obama and FHFA Director Mel Watt:
I am a mortgage broker of 30 years in Tampa Bay, Fla., one of the hardest hit areas with negative equity properties in the United States. As of December 2014, there were still 7.1 million underwater homeowners, or 13 percent of all mortgaged properties, with negative equity of 125 percent or greater across the U.S.1
First on the Home Affordable Refinance Program (HARP), a refinance program that is supposed to be available for those who own a home that is:
►Backed by Fannie Mae or Freddie Mac;
►Has negative equity; and
►The homeowner is current on their mortgage.
This program was supposed to offer a refinance with an unlimited loan-to-value (LTV), where the amount of negative equity is not capped. Instead, since the program came out, lenders have applied overlays en-masse, limiting maximum LTV, commonly capping the total at 105 percent to 150 percent LTV. You would think that these lenders would apply written guidelines to insure that these homeowners continue to stay current. No options are given to these homeowners who must go out on their own and research for the handful of lenders that offer HARP at the uncapped LTV. And other than improving customer loyalty, there does not appear to be any incentive for current lenders to assist underwater homeowners. Why? If the homeowner refinances their loan with another HARP lender, that is one less negative equity loan on the books of that initial lender.
In February of 2012 during the State of the Union Address2, there was a call on Congress to provide a refinance mortgage for responsible underwater homeowners who do not have a Fannie Mae or Freddie Mac mortgage. No programs were ever put in place.
HARP is the only refinance option for underwater homeowners current on their mortgage with a Fannie Mae or Freddie Mac loan. There is no refinance option for underwater homeowners current on their mortgage that do not have a Fannie Mae- or Freddie Mac-backed loan.
It seems incredible that we cannot provide a refinance program for mortgage holders who are current on mortgage payments, whether the loan is a Fannie Mae or Freddie Mac loan, or not. This refinance is for performing mortgages and could better the financial picture for 7.1 million homeowners in the U.S. that still have negative equity in excess of 125 percent LTV.
And here is the incentive: Show how reducing the loan term3 to 10, 15 or 20 years at a lower interest rate accelerates equity substantially. Show the break-even month and year when the homeowner will no longer have a negative equity mortgage.
And, while we are on refinances, could you please find out why mortgage lenders cannot proactively reset performing HELOCs4 and second mortgages to lower, current rates when they are due to be fully amortized for homeowners that are paying on time? There is no refinance option available for these loans unless the homeowner goes delinquent, and many will be negatively affected when interest only payments at existing higher rates become fully amortized.
Pam Marron (NMLS#246438) is senior loan officer with Innovative Mortgage Services Inc. (NMLS#250769). She may be reached by phone at (727) 375-8986 or e-mail [email protected]. Go to www.8Problems.com for Video 4 and Video 5 to show problems of no refinance availability and how shorter term, lower rate escalates home equity.
2—Jan. 24, 2012: Blueprint for an America to Last/President Barack Obama, page 8, "Call on Congress to give every responsible homeowner the opportunity to refinance: Millions of Americans who try to refinance are given the runaround from the bank even though they are current on their payments."
This article orignally appeared in the March 2015 print edition of National Mortgage Professional Magazine.