Question: Our ARM is up in two years. We owe $301,000 and according to a couple of banks we have talked to, our value is coming in at about $270,000. We do not have $30,000 to add to our loan just so we can refinance. What we want is a 30-year fixed-rate loan on our home as we do not plan on moving. We love our home. We have excellent credit and good solid jobs (31 years at Boeing and 12 as a meat cutter). Our interest rate is 7.75 percent and our mortgage payment is $2,400 and we would really like to reduce our payment. Our lender says we can’t even modify because we have never been late and have no hardship. Wouldn’t that hurt our credit anyway? Could you please tell us what to do?
Answer: I don’t know if I can tell you what to do, but I can give you some information that may help.
As I said in last week’s column, a lot of homeowners find themselves underwater, meaning they owe more on their home than it is worth. There may be some hope for you if you qualify for the Fannie Mae or Freddie Mac Make Home Affordable program.
The idea of the program is this: allow homeowners who have seen the equity in their homes disappear to refinance their primary mortgage, even if they owe more than the home is worth.
Under the program, you can borrow up to 125 percent of your home’s value. But in today’s market, most mortgage lenders won’t go above 105 percent of value. So you will have to search out one of the few lenders who is willing go to the max on the program, because a $301,000 loan on a $270,000 house is 115 percent of the home’s value. And that’s before you add in the loan closing costs.
To qualify for the Make Home Affordable program, your mortgage must be current on your loan payments and your mortgage must be owned or guaranteed by Fannie Mae or Freddie Mac. If you got your original mortgage from a portfolio lender who did not sell the loan to Fannie or Freddie, you are out of luck.
To find out if your mortgage is owned by Fannie or Freddie, go to loanlookup.fanniemae.com/and https://ww3.freddiemac.com/corporate/.
If your loan is owned by Fannie or Freddie, that does not mean that you automatically qualify for a new loan. It’s just the first step in the process.
Another requirement is that you do not have mortgage insurance. If you purchased your home with a small down payment and mortgage insurance, you are not eligible for the program.
You cannot get any cash out when you refinance your first mortgage and you cannot use the loan proceeds to pay off an existing second mortgage or home equity loan.
If you have a second mortgage (or home equity loan), you cannot refinance that under the program; only your first mortgage can be refinanced. The lender holding the second mortgage would have to agree to subordinate their loan to a new first mortgage. In today’s market, most banks are willing to subordinate because a refinance would lower your monthly payments on your first mortgage and make it less likely that you will default on your loans and go into foreclosure. But be prepared for long delays in obtaining a subordination agreement from the lender holding your second mortgage. In some cases, it can take several weeks.
So the bottom line is that you might be able to find a solution to your problem, but it won’t be easy and you’ll have to shop around a lot.
As you have discovered, you can’t even qualify for a loan modification because you have never been late on your mortgage payments and you have enough income to make your current payments, so you do not have a financial hardship.
It seems unfair that responsible people with good credit and good incomes are penalized while irresponsible people who borrowed more than they could truly afford are rewarded, but that’s the way it goes. I don’t make the rules, I just report them.
Mail your real estate questions to Steve Tytler, The Herald, P.O. Box, Everett, WA 98206, or e-mail him at economy@heraldnet.com.
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