Underwater Homeowners Have Longer to Refi

Homeowners who want to refinance but have little or no equity, might want to check out a federal government initiative called the Home Affordable Refinance Program, or HARP. Recently extended to the middle of 2012, HARP gives homeowners an opportunity to capture a lower interest rate or trade in an adjustable-rate mortgage for a fixed-rate loan, even if they are underwater on their mortgage — that is, they owe more than the house is worth. HARP isn’t a free ride, however. Borrowers must complete a loan application, submit full documentation, meet other guidelines and pay closing costs, according to Vickee Adams, a spokeswoman for Wells Fargo in Des Moines, Iowa. “It’s a new loan,” Adams says, “so it has to go through the underwriting process, meaning that loan refinance fees will apply.” Guidelines Updated HARP is open only to borrowers whose existing mortgage is owned or guaranteed by Fannie Mae or Freddie Mac. That leaves out anyone whose loan is insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs or Department of Agriculture. Exotic payment-option adjustable-rate mortgages, or ARMs, stated-income, stated-asset loans and larger jumbo loans are typically excluded. The borrower must be current on the existing loan and have a good payment history. Fannie Mae allows one 30-day late payment in the prior 12 months. Freddie Mac requires no late payments in the prior 12 months. Related Links Combine Mortgages to Whack Interest Costs When is a HARP Refinance Worth the Cost? Is It Time to Kill the Mortgage Interest Tax Deduction? 9 Expenses to Lose in Retirement Related Video Behind on Your Mortgage Payments? Tips to beat the real estate crunch When the program was launched, an existing Fannie Mae loan had to be funded prior to March 1, 2009, and an existing Freddie Mac loan had to be funded prior to June 1, 2009. However, a recent program change has matched (aka “conformed”) Fannie Mae’s date to Freddie Mac’s, adding an additional three months of eligibility for those borrowers. The window is still a stopper for some homeowners, according to Kirk Chivas, chief operating officer of First Commerce Financial in Wixom, Mich., which closed 60 HARP refinances last year. “I wish they didn’t have it (only) through May 2009,” he says. “I wish it was a forever thing, or at least up through 2010 May, because home values were still declining.” A second program change is that Freddie Mac has elected to exempt new HARP loans from certain recently announced “price adjustments,” or added fees, which lenders usually pass along to the borrower in the form of higher closing costs or a higher interest rate. New PMI Not Required The chief advantage of HARP is that it allows borrowers to refinance with a loan-to-value, or LTV, ratio as high as 125%. Borrowers naturally may wonder whether such loans will require private mortgage insurance, or PMI. The answer isn’t simple. In most cases, existing loans that have borrower-paid PMI are eligible, the PMI contract can be transferred to the new loan, and new PMI won’t be required. There are some technical exceptions, however, so borrowers should discuss their situation with a loan officer who is familiar with the guidelines. The main exception is that it is difficult or impossible to do a HARP refinance of a loan with lender-paid PMI. Most PMI policies are borrower-paid. Another significant advantage is that borrowers who have a second loan can exclude that amount from the LTV ratio. “The neatest thing about the program is that I have people who are 125% loan-to-value, but have a second mortgage. They may be 125-over or 175 or 150, and you can still do the loan,” Chivas says. Borrowers whose LTV ratio is higher than 105%, though still within the 125% limit, likely will be subject to higher costs to refinance. Not a Failure HARP hasn’t lived up to its advance billing, nor has it been a flop. In 2010, Fannie Mae and Freddie Mac purchased or guaranteed about 621,800 HARP refinance loans, up from about 190,180 such loans in the prior year when the program was launched, according to the Federal Housing Finance Agency, or FHFA. Wells Fargo alone has closed more than 215,000 refinance loans with LTV ratios greater than 80% since HARP was started, Adams says. “The claims of this particular program being a disaster are, I believe, completely inaccurate,” Chivas says. That said, the number of homeowners who can benefit may be shrinking due to higher mortgage interest rates, he says. Upward adjustments in rates make refinancing less attractive, even for homeowners who could reduce their total interest expense over the term of the loan. Homeowners who could benefit but haven’t yet acted may be angry or numb or despondent over the drop in the home’s value, Chivas says. Some are reluctant to spend $2,000 upfront, even to save $30,000 or more over the loan term, because they don’t feel secure about their job or financial situation. Borrowers should note that the name “HARP” originated at the U.S. Treasury, but isn’t used by most lenders. Instead, Fannie Mae’s programs are part of its Refi Plus and DU, or Desktop Underwriter, Refi Plus while Freddie Mac’s program is called Relief Refinance Mortgage. Borrowers seeking assistance are advised to shop around, regardless of whether their loan is in Fannie Mae land or Freddie Mac world. Asking for “the Treasury program that allows a higher LTV” might help. Unless HARP is extended again, the new end date will be June 30, 2012.

5 Ways to Put Your Financial House in Order

Annual spring cleaning isn’t just something everybody should do in their homes. It also applies to our personal finances as well.

As you file away your forms at the end of the tax season, it’s a good time to take a closer look at the big picture of your financial structure and tidy up where needed. Here’s a checklist of key considerations to help you get started:

Lay a balanced investment groundwork. Does your current asset allocation–the mix of securities in your investment portfolio–still match your risk tolerance and time horizon? Stock market performance over the past few years may have altered the value of your stock holdings above or below the level you had originally intended. If so, consider rebalancing, either by selling some of your stock or bond investments, or by purchasing more stock, bond, or cash investments. Now is also the perfect time to look to other asset classes besides just stocks and bonds.

Create a nest egg for the future. Rather than just hoping you’ll have enough for a comfortable retirement, take some time to calculate how much you’ll need, and how much you’ll need to save. Your financial professional can help you establish a realistic accumulation goal and ensure that you’re on course to reach it. There are also many tools online to assist in laying out and tracking your retirement goals and objectives.

Check your family’s security system. Insurance can help protect you and your loved ones from the costs of accidents, illness, disability, and death. It’s an important part of any sound financial plan. However, your individual need for coverage depends on your personal circumstances, including your age, family, and financial situation. A young, single person, for example, may not need much life insurance. A person with a growing family, on the other hand, may need to ensure adequate financial protection for loved ones.

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Preserve the assets you’ve accumulated. You may not enjoy thinking about what will happen after you’re gone, but failing to plan could cost your family and loved ones. A sound estate plan can help preserve your assets and keep them from being unnecessarily reduced by taxes. The IRS allows transfers of up to $5,000,000 in assets federally tax free. While that may sound like a limit you’ll never approach, if you tally the appreciated value of your retirement assets, your home, life insurance, death benefits not held in trust, and other holdings, you may find otherwise. Your estate plan should include an up-to-date will and may make use of tools for charitable giving and joint ownership of property.

Reduce outstanding debt. While you’re putting the rest of your financial plan in order, don’t neglect credit card balances or other outstanding debt. Consider ways to either reduce your debt or manage it better. For example, you might be able to save on interest charges by consolidating and transferring your credit card balance or by refinancing your mortgage.

Your financial house is a complex structure that needs regular upkeep. By staying on top of things and keeping your financial house in order, you’ll be well on your way to reaching your goals.

Doug Lockwood, CFP is a partner at Harbor Lights Financial Group, a full service wealth-management team that has been dedicated to assisting clients in the accumulation and preservation of their wealth for over eighteen years. He was recently named one of America’s Top 100 Financial Advisors by Registered Rep Magazine (August 2010) based on assets under management.

Doug Lockwood is a registered representative with and securities offered and advisory services through LPL Financial, a Registered Investment Advisor, Member FINRA/SIPC. For more information, go to www.hlfg.com.

Pennsylvania Housing Finance Agency Honors Its Top-10 Home Loan Lenders

HARRISBURG, Pa., March 16, 2011 /PRNewswire-USNewswire/ — At a banquet held today at the agency’s headquarters, the Pennsylvania Housing Finance Agency honored its top-10 participating lenders for their homeownership programs. These lenders assist homebuyers throughout the state in the application, processing, and closing of PHFA loans. Brian Hudson, executive director and CEO, recognized these outstanding organizations in their efforts to assist Commonwealth families and individuals achieve the American dream of homeownership.

Out of approximately 120 participating lenders, the top 10 were presented awards at the banquet and were recognized for home loans funded by PHFA in 2010. The agency’s honorary partners are, in ranking order: Sovereign Bank, Howard Hanna Financial Services, West Penn Financial Service Center, Jersey Shore State Bank, Gateway Funding Diversified Mortgage Services, Wells Fargo Home Mortgage, Boulevard Mortgage Company of PA, Allegheny Mortgage Corp, Huntingdon Valley Bank, and Fulton Mortgage Company.

Some lenders were further recognized for the quality of their loan packages and/or production of various specialty home loan products. Special award recipients were: Sovereign Bank for the Most Keystone Assistance Loans, Most Loans to Minority Homebuyers, and Most New Construction Loans; Jersey Shore State Bank for the Most HOMEstead Loans and the Best Quality Post-Closing Submissions; Howard Hanna Financial Services for being the Top QuikClose Lender; Allegheny Mortgage Corp for the Best Quality Underwriting Submissions; West Penn Financial Service Center for the Most Tax Credit Advance Loans; First American Mortgage for the Number One New Lender; and Select Mortgage for the Top Third Party Originator category.

About PHFA

The Pennsylvania Housing Finance Agency works to provide affordable homeownership and rental apartment options for older adults, lower- and moderate-income families, and people with special housing needs. Through its carefully managed mortgage programs and investments in multifamily housing developments, PHFA also promotes economic development across the state. Since its creation by the legislature in 1972, it has generated $9.9 billion of funding for more than 141,700 single-family home mortgage loans and 83,000 rental units, while saving the homes of nearly 45,500 families from foreclosure. PHFA programs and operations are funded primarily by the sale of securities with the exception of its Homeowners’ Emergency Mortgage Assistance Program, which it receives a state appropriation to administer. PHFA is governed by a 14-member board of directors.

SOURCE Pennsylvania Housing Finance Agency