HARP Loans Maryland – homeowners being told “NO”
Home Affordable Refinance Program -(HARP)- Reasons for turn downs. How you can still get approved.
-by Scott Lucas, Licensed Maryland Loan Officer; February 10th, 2013
Nationally, two million homeowners have been helped . About four hundred thousand in Maryland. Yet many are being told “NO“— and the program is scheduled to end this December (2013).
Since its 2009 start, the HARP program has helped over two million American families refinance their homes. Without the program, those homeowners would have been stuck with high rates, even though they pay on time.
There have been accusations of “feet dragging” by the agencies under the program, especially against Freddie Mac, and the data pretty much support the accusations. Things are improving. The volume of HARP loans has steadily increased.
But what about the Maryland homeowners, whos loans are owned by Fannie or Freddie, and have been told NO?
Following is a list of the obstacles, followed by explanations. Most of these obstacles can be overcome.
1) Your mortgage is owned by Freddie instead of Fannie
2) The existing loan has mortgage insurance
3) Late mortgage payments
4) Your credit score is lower than 700
5) Second mortgage that needs to be subordinated.
6) LTV / CLTV
7) Paying for an appraisal
8) You are self employed with complicated tax returns
9) Occupancy – 2nd home or rental property
10) Your loan is under $100,000
1) The data do seem to show that Freddie was dragging and is dragging its feet on these refinances. Worse than the data is the perception of Lenders toward this.
A quote from one lender who stopped working with Freddie Mac Harp loans. “Freddie is famous for finding ways to avoid purchasing HARP loans that we refinanced in good faith … …We closed them under the HARP rules… and Freddie nitpicks these closed loan files looking for ways to not buy them again. That's bad faith on Freddie's part and we refuse to work with them.”
Bottom line– far fewer lenders are willing to refinance Freddie Mac loans than Fannie Mae loans. So who owns your loan?
2)Mortgage Insurance on the existing loan.
You might be paying it monthly, it may have been financed into the loan, or your old lender might have paid it – and you didn’t even know. HARP rules say that this is OK. But many lenders consider it too much trouble to get involved with.
3) Timely mortgage payments
First off- a mortgage payment is not “late” for credit reporting purposes if paid between the 15th and 30th. Maximum 30 day late payments in the past year— One. Maximum 30 day late payments in past six months– ZERO.
The solution? There is still time left. Stay focused and concentrate on getting timely mortgage payment made. Do not mail checks. Pay on line. Set up auto-debits if you can.
4) Credit Scores
Technically, Fannie & Freddie say there is no minimum score. However, many lenders require 660, 680, or 700 depending on the rest of the issues.
5) Secondary financing subordination
You have a small $10,000 home equity loan on top of your $200,000 first mortgage. Getting the second lender to subordinate is usually not difficult, and permitted under HARP. However, some lenders do not want to go through the trouble…. and instead simply deny the HARP application.
6) Loan to Value (LTV) and Combined loan to value (CLTV)
Your Fannie Freddie first mortgage balance is $130,000, your second mortgage balance is $30,000, and the Fannie Freddie computer says the house is worth $100,000. That means your LTV is 130% (130/100) and CLTV is 160% (the 130 thousand first and 30 thousand second, all divided by the value).
Problem? Some lenders may balk at exceptionally high LTVs or CLTVs. The prior rule was 125%. Officially…. there are now no limits at all.
The issue is this- Fannie’s and Freddie’s databases have so much data that their software usually provides a value estimate when we request an approval. So, the computer can “waive” the appraisal requirement.
Sometimes, especially in rural areas, the database just can’t estimate a value, so the approval asks for an appraisal. Do you pay for one??
Well, since HARP removed the value rule, why ask for an appraisal at all? Never-the-less, it would seem safe to pay for it if the lender will lock in your rate before you do .
8) Self employed
Many self-employed borrowers have suffered declines in earnings because of the economic downturn. Many have complicated tax returns, and some have losses such as carry-forwards from past years. Given the risk that Fannie or Freddie might not purchase the new refinance, many lenders shy away from analyzing self employment income and simply decline otherwise approvable loans.
Although HARP rules allow for second homes and investment properties, most lenders do not feel comfortable working with these types of occupany.
10) When existing loan balances are under $100,000 the fixed costs of a refinance often outweigh the payment savings. Cost benefit calculations should be done.
Many home owners who are told “NO” when inquiring about a HARP refinance, are the victims of “lender risk overlays”, not Fannie Freddie rules.
Call, text, or email Scott Lucas if you need help or have additional questions.