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Tags: finance, home equity loans, eased standards on mortgage refinancing
 Currently the state of our realty and housing market can be summed up in one word—troubled. In fact a few would even say that “troubled” is an understatement, but let’s leave it at that. While the National Association of Realtors said that sales of existing homes rose to 2.4% in May, about one third of all sales are of distressed properties, with roughly 29% of that going to first time home buyers, who are currently benefiting from the $8,000 tax credit for first time home buyers, while the others are not really of the “moving up” type of transaction.
According to Standard and Poor’s Case-Schiller Index, house prices fell during the first quarter of this year. And on top of that S & P also reported that losses on risky loans backing U.S. mortgage securities can go as high as forty percent, forecasting a bleak outlook for the housing market.
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In an effort to assist those so called underwater homeowners—homeowner’s whose balance on their mortgage far outstripping the value of their home--do mortgage refinancing, the Obama government has expanded their foreclosure prevention efforts. In response mortgage finance companies Fannie Mae and Freddie Mac has eased standards on mortgage refinancing. Under this program, both companies would refinance a mortgage up to 125% of a home’s value.
This is an increase from the current 105% loan to value cap. According to Treasury Secretary Timothy Geithner, expanding the refinance eligibility can bring more relief to underwater homeowners. It is kind of ironic considering that those who will be helped by this program are the very same people who helped cause the mortgage mess in the first place—they are people who have used up all the equity in their homes, relying on rising home values to support their debts and when the market collapsed, they found themselves forced into foreclosures.
In fact Fannie Mae has already streamlined their application process in order to make it easier for someone to refinance their mortgage. This is so they can help break the refinancing logjam according to Fannie Mae spokesperson Brian Faith. Under the streamlined process, those with lower credit scored can apply and are eligible to get refinancing of up to 80% of their home’s value.
This means they don’t have to meet the 680 credit score requirement—even if you have a 580 or lower you are still eligible to refinance. They will need to get private mortgage insurance however. And the documentation requirement has been eased as well. Only one pay stub is required or one income tax return if you’re self employed.
You’ll still need to show proof of employment of any kind with income in order to qualify. But don’t think that this will be “easy money” even with the new infrastructure in place. At the same time this does not work for loans with subordinate financing or others such as an interest-only loan or those with a balloon provision or even an adjustable-rate home loan with fixed-rate periods of less than five years.
Be that as it may this does come at a good time since PMI Insurance, in their quarterly report on economic and real estate trends predicted that home prices will still be in a decline for yet another two years. And while that is happening the Mortgage Bankers Association has reported that applications for refinancing have been on the rise.
And with this new rescue effort, the higher loan to value ratio, as well as the streamlined process we can probably expect those who weren’t able to refinance before to now try their hand under this new system. Whether or not this new economic effort bears any fruit remains to be seen.
It may help those that are not fully submerged yet, but it may not be much help for others. Only time will tell.
About the author
The author of this article Rick Goldfeller is a successful underground Financial Analyst who has been advising and coaching individuals for many years. Rick recently published a book on how to manage your money and attract Wealth and Financial Freedom. More info on his Finance Planning course is available HERE.
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