Dave Skaff: Time to refinance?
There's nothing like 30-year mortgage rates near 4 percent and 15-year even lower to make homeowners daydream about refinancing. But not everyone would come out ahead if they did. And borrowers with little (or negative) equity are in a tight spot -- though changes to the federal Home Affordable Refinance Program announced this week are aimed at increasing their chances of getting approved.
Today's guest poster, Dave Skaff, wants to shed some light on the subject. He's an M&T Bank regional mortgage manager responsible for loan officer staff in the mid-Atlantic.
Take it away, Dave:
---------------------------------------------------------
Mortgage rates are at historic lows. For millions of Americans, now could be the right time to make a move to improve their monthly cash flow. But getting a home loan in today's mortgage world is not as easy as it once was. Declining values and stricter documentation guidelines make it challenging for many folks. For anyone who is interested in refinancing, there are several key points to consider:
1) A small drop of just 1 percent could make it worthwhile to refinance for someone with a large loan balance. A few hundred dollars per month could be saved on a $300,000 loan, for example. On a lower loan balance, the monthly savings could be outweighed by the costs involved. It is best to consult with a mortgage specialist to see if refinancing makes sense for you.
2) As a first step, it's a great idea to utilize an independent source, such as a local Realtor, to help you determine the value of your home. Once you do that, you'll be able to see what options are available by contacting a mortgage loan officer to analyze the data.
3) Generally speaking, someone could refinance their home with as little as 5 to 10 percent equity in their home. FHA mortgages allow for just 2.25 percent equity. Additionally, there are many loan programs available today to help people who are "underwater," such as the HARP program, which was introduced by the Obama administration last year and amended this week.
The changes to the HARP program could enable more borrowers whose mortgages are backed by Freddie and Fannie and owe more than their home is worth to take advantage of low interest rates and other refinancing benefits. There are a series of changes that could make the program more attractive to these borrowers, including the removal of the current 125 percent loan-to-value ceiling for fixed-rate mortgages backed by Freddie and Fannie.
4) Many people are even considering changing to a 15-year term from their current 30-year term. This may make sense for a lot of homeowners as rates have dropped so much that in some cases changing to a 15-year term does not increase their monthly payment by much, if at all. In doing so, a homeowner can save tens or sometimes hundreds of thousands of dollars over the life of their mortgage, depending on the size of the loan.
5) Another option that may be available to some homeowners is the ability to take cash out of their house for home improvements, to pay for college education, etc. To do so, one would need to have plenty of equity in their property. Typically, the maximum amount would be limited up to 75 to 85 percent of the value of the home, depending on the loan program.
The mortgage industry has become extremely complex in recent times. The requirements that go into determining what type of loan may be possible for someone have become very elaborate with many factors involved. All of the items mentioned above vary depending on things like credit scores, property type, equity that is available in a property, etc. So, anyone who is thinking about a refinance (or a home purchase, for that matter) will need to take the time and sit down with a mortgage loan officer to review all of the options, because it's not as easy as it once was.
Interest rates will likely remain at historical lows through the end of the year. It remains to be seen what might happen in 2012. But as an economic recovery gains momentum, interest rates will likely rise accordingly. Which means that if refinancing makes sense for you, do not wait so long that you miss the window of historically low interest rates.
-----------------------------------------------
Thanks, Dave!
Thoughts, questions, arguments? Comment away.
If you'd like to write a guest post -- either to share expertise or to share an interesting housing-related personal experience -- please drop me a line. Details here.
And if you've got questions you'd like to see a guest poster address on another subject, ask away right here.
Categories: Guest post, Mortgage rates, Mortgages
Sign up for the At Home newsletter 
Comments
I would like to add that if you are interested in obtaining a mortgage loan, please don’t call a mortgage person and have your first question be, " What’s your rate?" or "What is your best rate?". These are non-sensical questions that do nothing more than tell the loan officer that you are an uneducated and have not done any homework on how loans work. The more appropriate inquiry would be phrased, “I have a set of circumstances and goals and would like to see which programs and rate/fee combinations would be most appropriate for me.” People that obsess about whether they are getting the lowest rate aren’t doing themselves or anyone else any favors. Getting the lowest rate/fee combo has more to do with the day you lock in than the individual lender/brokers. You can’t rate shop lenders on different days, you might as well be comparing the lenders weather on different days.
Choose a lender/LO based on recommendations or simply by their demonstration of product knowledge. Don’t choose the guy who is simply focusing or allowing you to focus the whole conversation on getting the lowest rate. He likely has no idea what he is talking about.
Posted by: elweedz | October 27, 2011 11:45 AM
Just wanted to add that if you are wondering if Fannie or Freddie backs your loan, you can look it up here: http://www.fanniemae.com/loanlookup/
.. but when do these changes to the HARP program go into effect, and how can you get into it, I wonder?
Posted by: marcie | October 27, 2011 12:38 PM
It's just as important to build a trusting, professional relationship with your mortgage broker as it is with your Realtor. Finding one with experience helps as well. Thanks for this info!
Posted by: Brandon | October 27, 2011 2:06 PM
What about 2nd mortgages? Seems most folks were doing piggy back loans to avoid PMI in the early 2000's. Can both loans be rolled into one for the refi under these new rules?
Posted by: Scott | October 27, 2011 4:31 PM
If you have zero or negative equity and are doing the HARP loan, you can't consolidate the 2nd, but you can subordinate it. After much difficulty and reluctance, it appears that most second holders are agreeing to subordinate for HARP. If you have equity and are doing a non-HARP loan, then you can, subject to 98% loan to value if the existing second was from the purchase, or 75-85% if the existing second was taken out some time after the purchase.
The HARP expansion is just another bank bailout dressed up as a consumer bailout. It even serves as a washing machine of sorts to rinse away any liability from fraudulent originations.
From a reporter conference call:
"The newly expanded program would expunge legal liabilities associated with mortgages refinanced through the program for the original lenders of the mortgages. Each time a bank sent a loan to Fannie and Freddie, it certified that the loan met Fannie and Freddie's safe lending criteria. But many loans sent to the mortgage giants did not, in fact, meet those criteria. Currently, when borrowers default on those ineligible loans, the mortgage giants can "put back" the resulting losses onto the banks that pushed the loans.
Under the modified plan, "put back" liability at banks will be erased for any underwater mortgage that is refinanced through HARP, eliminating Fannie and Freddie's ability to sack lenders with losses in the event that the mortgage does not pan out."
http://dailybail.com/home/new-obama-foreclosure-plan-shifts-fraud-liability-from-wall.html
Posted by: Josh Dowlut | October 28, 2011 9:34 AM
Marcie and Scott, here are Dave Skaff's answers to your questions:
"Banks will receive more guidance by November 15th from Fannie and Freddie. We think implementation will occur soon thereafter. Banks have not yet received the specific guidelines on second mortgages."
Posted by: Jamie Smith Hopkins | October 28, 2011 4:32 PM
Hello, I just received notice from bank of America that my loan has been sold to M&T. I was finally going to qualify for harp 2.0 with BOA and am now worried that the dates of my loan transfer (last payment before 11/15 and sale final 12/1) match exactly the dates of harp 2.0 for banks. Is my loan being sold to M&T to stop me from qualifying for harp 2.0 or am I worrying for nothing? I was unable to find online if M&T will be doing the program and living in the Midwest I am not familiar with them. Please Help!
Posted by: Jason | November 7, 2011 6:39 PM
Here is Dave's response, Jason:
"The exact rules will be released in the coming weeks. To discuss your circumstances, feel free to contact me at dskaff(at)mtb.com."
(I replaced the @ in his email address to cut down on spam.)
Posted by: Jamie Smith Hopkins | November 10, 2011 3:16 PM
i'm in the exact circumstance as jason's comment on nov.7, 2011. has there been any progress on the harp 2 program and M&T? i live in the southeast.
Posted by: brook | February 9, 2012 12:36 PM
Alas, I don't know, brook. Have you tried calling M&T or emailing Dave Skaff at the email address above?
Posted by: Jamie Smith Hopkins | February 9, 2012 12:39 PM