The Truth About HARP 2
UPDATE 11/29/2012 We can now do just about all qualifying HARP 2 refinance loans regardless of whether you have mortgage insurance or not! Also, we do not have a limitation of how upside down you can be. It doesn’t matter if you owe twice as much as what your home is worth, bring it on! Want to know if you qualify? Click here to find out
It’s been a few weeks since Obama’s new Home Affordable Refinance Program took effect and we’d like to take a look at some of the experiences we’ve had and lessons we are still learning about HARP 2.0 . Investment properties are harder to approve, mortgage insurance is a pain to deal with and banks are ripping off their own customers (what a surprise!).
Real estate investors countrywide rejoiced when they heard about the new HARP 2.0 refinance loan that would allow even investment properties that are upside-down to be refinanced at today’s lower interest rates.
We alerted our clients to the release of the new program and began collecting applications at a rapid pace. Yes, the guidelines say you can refinance an investment property. Yes, the guidelines say that it doesn’t matter how upside-down the property really is. BUT, the guidelines also say that you need to obtain an approval through the Automated Underwriting System in order to qualify for the program.
An Automated Underwriting System (or AUS as it is commonly referred to as) is basically a computer program that takes your loan application information and matches up to the guidelines for Fannie Mae and Freddie Mac loans (of which your current loan must be in order to qualify). The AUS then reports its ‘findings’ and tells you a) If the loan is approved and can be resold to Fannie/Freddie, and b) What documents and steps will need to taken in order to close the loan.
What is happening now is that we are running our investment property clients through the AUS and the system will not give an approval. Without an approval, the loan cannot be resold and therefor cannot be approved and closed. It seems that a high amount of reserves (liquid assets) will help your chances as well as if your property is not TOO much underwater. There is no cut and dry point here, you really just have to apply and hope to get approved. It shouldn’t cost you a dime to find out, so may as well give it a shot.
If your loan has mortgage insurance, your refinance may be in for a bumpy road. Mortgage insurance is a bank’s way of insuring your loan against default/non-payment. That is why it is only required if there is less than 20% equity in the property or you are putting down at least 20% on the down payment of a home purchase; because those are considered higher risk loans for default.
With the new program, the mortgage insurance companies are ‘transferring’ their existing policies over to the new mortgage insurance (MI) company that works with the new lender on a refinance. Sure this sounds nice and easy, but the issue we are running into is that not all MI companies will do the transfer or participate in the program and even if they do, they new bank may not accept it.
The transfer of MI adds an entirely new dynamic to the refinance process. The lesson to be learned here is that if you have MI currently and want to refinance your upside-down mortgage, be patient and choose a broker/banker that knows what he/she is doing. Choosing the wrong mortgage professional could be the difference between an approval and saving hundreds a month OR a denial and being stuck in a bad situation. Do your research and choose wisely.
Don’t Trust that Bank! You CAN go elsewhere!
Here’s a surprise: your current mortgage holder may not have your best interests at heart. We’ve been getting more and more clients calling us telling us that their current mortgage company quoted them a rate in the high 4’s or 5’s. In some cases they are even telling clients that they can’t refinance elsewhere to try to get them to agree. Don’t be a fool! Bank’s are using this program to generate even more revenue for their coffers and are relying on you, the consumer, to not do any research and take whatever they give you.
You have options! With HARP 2.0 you can refinance with any lender you choose, you are not stuck with your current bank!.