refinance mortgage

Decoding President Obama’s Housing and Loan Modification Plan

If you’re like everyone else in America, you’ve probably heard about the President’s recently unveiled plan to help millions of homeowners to refinance or modify their mortgages.

However, despite plenty of news coverage, many Americans (and even a fair share of mortgage lenders and financial reporters) are still scratching their heads over exactly who the plan is for and how it works.

So we decided to ask Bob Walters, Chief Economist here at Quicken Loans, to help you decode the Obama housing plan and make better decisions about what to do next when it comes to refinancing.

Bob was one of the economists and banking leaders on the conference call when the government rolled out the plan on Wednesday, March 4, 2009. He’s been poring over the official documentation ever since. Today, he gives his run-down of what you need to know.

What Exactly is The Obama Housing Plan and Does It Benefit Me?
Bob Walters, Chief Economist, Quicken Loans

The “Making Home Affordable Plan” was created to help two groups of homeowners:

1. People who are making their mortgage payments, but were unable to qualify for refinancing in the past because they owe more on their house than it’s currently worth.
2. People who are at risk for imminent foreclosure.

Let’s take a quick look at what the government is doing for each of these groups. If you’re like 90% of Americans and have been responsibly paying your mortgage on time, you qualify for already historically low mortgage rates, and you can jump ahead to the third scenario.

Situation One: You owe more on your home than it’s worth.

If you owe more than your home is worth (also known as negative equity or “being underwater”), the new Obama housing plan offers a special refinancing program known as the Home Affordable Refinance Plan. (This plan is called DU Refi Plus™ at Fannie Mae and Relief Refinance^SM at Freddie Mac.)

This program will allow more than 5 million people who didn’t qualify for a mortgage in the past to refinance. To qualify:

• You need to have a Fannie Mae or Freddie Mac mortgage.
• You need to have satisfactory credit.
• You can now have up to 105% loan-to-value (meaning you can now owe as much as 105% of your home’s current value).
• You can’t refinance for more than the amount of the mortgage (no cash out).

A few other things to know:

• If your current loan doesn’t have PMI (Private Mortgage Insurance), then PMI will NOT be required on the new loan.
• This program differs from a “regular refi” by benefitting:
  • People who cannot qualify for a traditional refi because they do not have enough equity.
  • People who would have had to pay Private Mortgage Insurance with a traditional refi.

Situation Two: You are in default on your mortgage or in imminent danger of default

If you are having problems making your payments and are at risk of foreclosure, the plan provides a special loan modification program for troubled homeowners.

A loan modification is exactly what it sounds like – a lender modifies the terms of your original loan, typically to reduce your interest rate or payment. In this program, your mortgage rate would be reduced for five years.

Loan modification programs have existed for some time now, but have, in general, been failures. The government is trying to correct this by creating specific requirements and a more rigorous process behind loan modifications.

It’s important to note that the loan modification program in this plan is intended to help keep the most troubled homeowners in their homes. It is not for people who can currently pay their mortgages. The new requirements are very specific.

To qualify for a loan modification, you will have to:

• Prove in writing that you have a serious hardship that is preventing you from making your mortgage payment, or that your income has dropped significantly, or your rate or payment increased drastically.
• Document all of your personal expenses, income and assets, to prove that you are unable to pay your mortgage.
• Depending on your situation, you may be required to receive financial counseling as a condition of participating in the program.

A few other things to know:

• The loan modification doesn’t necessarily reduce principal, and if you sell or eventually refinance the house, you may still have to pay off the balance.
• If you’re in a situation where you are in default or at risk of default, it may help you keep your home by:
  • Reducing your interest rate (as low as 2%).
  • Extending the term of your loan up to 40 years.
  • Allowing you to forbear principal.

If you think you qualify for a loan modification, you’ll need to work directly with the servicer of your loan.

Situation Three: You can currently qualify for a refinance

If you’re like 90% of Americans who’ve been paying your mortgage on time, you can benefit from some of the lowest mortgage rates in history. The Fed has been taking action to keep rates as low as possible. However, their ability to control mortgage rates is limited.

If you held off pulling the trigger on a refinance until the details of the administration’s housing plan were made public, it’s time to revisit your mortgage right away. While rates continue to be low, they could change at any time, so waiting any longer could cost you money.

Bob Walters is Chief Economist at Quicken Loans, the nation’s #1 online mortgage lender, and is often quoted on mortgage and personal finance issues by media including CNN, Wall Street Journal, New York Times, USA Today, Reuters, Dow Jones, Bloomberg, MarketWatch, and others.

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refinance mortgage

Can you refinance your mortgage?

You have just bought a house but after some time the interest rates have fallen and you are stuck paying the same high interest. So you want to refinance?

Understanding the basic nuances of a refinance mortgage and its advantages is important. Opportunities for saving money are unlimited with the different deals available these days with refinance. Reducing the monthly payments with a lower interest refinance seems to be am intelligent decision seeing the various refinance options with your own mortgage.

Changing your ARM to a fixed loan or vise versa or maybe cash out loan is possible. Keep the rate of interest on each loan before going ahead with a refinance. Talking to your mortgage lender will help as they will look over your account balance, term left on the loan and monthly repayment options. So, give it a thought and take the advice of a lender before committing yourself to refinancing.

refinance mortgage

BENEFITS OF A REFINANCE HOME LOAN

There are many advantages of a refinance home loan. Some are:

• Refinance is changing the loan without buying another house.
• Refinance is changing over to another low rate loan with another lender to save money.
• Refinance can be used to free the equity on the house for other investments.
• Refinance gets you a better loan deal of lower interest and your installments cost you less.
• Refinance helps to consolidate debts into one bill.
• You maybe needing cash for buying a car, education, wedding, renovations. Refinance is the right solution.

So, go ahead improve your life, get a refinance.

refinance mortgage

BASIC INTEREST CONCEPTS: Lending Money

For lenders, such as in mortgage, the meaning of interest rate is the payment he will receive for renting out his funds. For instance, one has money and instead of spending it on goods and services, he decided to loan it to someone. Here, a more sophisticated interpretation of the concept of interest that you are willing to accept is that the interest you charge is the cost of deferment of immediate consumption.

refinance mortgage

BAD CREDIT REFINANCES LENDER

With a low credit your eagerness to get a refinance or a loan approved should not land you with a high interest loan. Choosing a refinance lender is very important because the whole deal depends on him. The questions that need clearing are:

• Ask about the pre payment

Prepayment penalty should not be there for more than 6 months to 1 year.

• Ask about the interest rate

Be clear about the exact interest rate, including closing costs.

• Your affordability to repay

Subprime loans get easy approvals but refinancing helps when your credit rating improves. So, take a loan which fits your budget.

• Ask about closing costs

Clarify all issues related to the loan refinance. All fees and closing costs should be clarified.

It is better to choose a good refinance lender who can guide you better.

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