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Obama Plan ............... New Refinancing Program.

Yesterday I wrote the first of two parts on the Homeowner Affordability & Stability plan that was released by the Obama administration on Wed March 4th. Which contained two major parts they hoped would have an impact on assisting homeowners with troubled mortgage. The first part of the plan which I blogged about yesterday is a modification program that Servicers will offer to borrowers with high debt-to-income ratios or who are at risk of foreclosure. The second part of the plan which I am blogging about today, a refinance program for existing Fannie Mae or Freddie Mac loans.

As I stated yesterday our Executive Vice President at McCue Mortgage, Kim Neilson and others are still assessing the details of the Homeowner Affordability & Stability plan to determine our next steps, but in the mean time we are trying to provide a summary of its major points so that it might help other to better understandable it. So here we go:

The second part of the plan is a refinance program for existing Fannie Mae or Freddie Mac loans. Fannie Mae is offering two different programs:

The Refi Plus Program that requires the servicer of the loan to be the originating lender.
The DU Refi Plus Program (DU is the Automated Underwriting System for Fannie Mae) that allows any lender using DU to originate the loan as long as the existing loan is a Fannie Mae loan.

Freddie Mac requires the servicer of the loan to be the originating lender. Some specifics of the program are:

Existing mortgage must currently be a Fannie or Freddie loan.
Existing loan may not be considered ineligible (must get an Approved/Eligible from DU). Ineligible loans include existing mortgage loans that received a DU Expanded approval (EA).
Maximum LTV for 1-2 unit properties is 105% and require an appraisal.
Maximum LTV for 3-4 unit properties is 80% and also require an appraisal.
No maximum CLTV.
Existing mortgage must be current and have acceptable mortgage payment history. No minimum FICO score is required although borrower must meet bankruptcy and foreclosure requirements. In addition, borrower must demonstrate credit worthiness.
Rate and term refinance only (No Cash Out) - purchase money seconds MAY Not be included.
Loan level price adjustments (points) will apply (determined by credit score on credit report)
MI required (same coverage factor of existing loan) for mortgage loans that had original LTV’s greater than 80%.
DU Refi Plus must receive Approve/Eligible and will not be available until April 4. Income and employment verification is required.
Refi Plus is a manual underwrite and requires verbal verification of employment. Lender must determine that the borrower has a reasonable ability to repay the mortgage based on current information provided by borrower.

There it is in a nut shell. I actually have higher expectations for this part of the plan then I do for the Loan Modification part. This part of the plan stands a chance to actually help those who have good credit and have little to no equity in their property. But I do not see it doing anything for those who are in areas that property values have taken a noticeable hit, and 105% LTV is not going to do anything for them. Also this does offer a second option to FHA which will allow a borrower to go to a 96.5% LTV on a No Cash Out Refi.

While I think that this plan might actually help a few people, but it will be a source of false hope for many more. As I ended my last post, the purpose for providing this information is so that those who read it may have a better understanding of the "Homeowner Affordability & Stability Plan", and help them come to their own conclusion.

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Info about the author:

George Souto is a Loan Officer who can assist you with all your FHA, CHFA, and Conventional mortgage needs in Connecticut. George resides in Middlesex County which includes Middletown, Middlefield, Durham, Cromwell, Portland, Higganum, Haddam, East Haddam, Chester, Deep River, and Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com

Posted by George Souto on 03/11/2009 03:52 PM

Comments (31)

Refinance in the Mortgage / Finance Channel

refinance connecticut, middletown, cromwell, portland

Originally posted at: George's Blog: Obama Plan ............... New Refinancing Program.

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31 Comments on Obama Plan ............... New Refinancing Program.

MAR

George thanks for your overview. I suppose only time will tell as to how many will benefit. Just heard Fannie is looking for another 30 billion.

Another 30 million, outragious, George thanks for the info, Patt

Ineligible loans include existing mortgage loans that received a DU Expanded approval (EA).

Why???? Like the buyer and the lender know at underwriting that it would interfere with mortgage modification or refinance in the future???

What kind of sense does that make.

I have low expectations for the number of home owners that this will help.

What happens if the loan has been sold to another mortgage company or the lender has closed?

George- thanks for following up with Part 2... Although many in Southern California are in the 150-200% LTV range, I'm hoping that this plan will help at least a handful of struggling homeowners. Since it is our job to assist one client at a time, I will choose to see the good side of this and hope for the best. We all know that the true joy of this business is having that ONE family who looks you in the eye and truly thanks you for leading them down the right path.

George: Thank you for this clear and easy to understand post. I am wondering if this is realistic:

$500,000 appraisal

$525,000 maximum loan (105%)

Those that need it in California are more upside down than this.

Just another dressed up FHA Secure and Help for Homeowner type Mortgage Plans. No one beneffited from those and these are just a tad better at most. In California where the average depreciation on homes purchased 3 years ago is averaging 40%, this is not even a grape to a starving man.

Until someone seriously comes up with a real Homeowner help plan and refuses more Bail Outs to Banks we're stuck with plans that don't work. Starve the Banks and see how long it will take for them to start negotiating with their existing loan customers. They'll be forced to turn Toxic assets to loans that pay, maybe not full amount but something

George, where did you get the 'floor rates' on modification? We have heard 4%.

The inherent problem is that the lenders remain inept with untrained staff and this provides a neat money grab for them but precious little to help the consumer actually get the best terms. Given most consumers are so stressed at a time like this it seems they do need an independent representative. Unfortunately the HUD counsellors give you 40 minutes and hand you over to the lender. I have several friends trying this route and it did NOT stop the notice servers from arriving and letting the entire neighborhood know they were in default...taking pictures of the house and stapling default notices on their doors like criminals.

that is a lot of informtion to digest since I am not a loan officer. Janet makes a good point; we are under water here in California and all we can do is help where we can. Median home values here have dropped more than 37% in the last quarter alone!

Jennifer, that does not surprise me.

Patt, they have found the gold goose.

Lenn, EA's were the riskiest of the approved Fannie Mae Loans, very high LTV's and Ratio's. We are talking 100% financing at 65% back ratio's.

Norma the way I read it and understand it they would be eligible for the "DU Refi Plus Program"

JB, unfortunately you are correct.

Janet, I believe you are right in my opinion it will not help those that you mentioned.

Chuck, this is better in my opinion then the FHA Secure, how much better, we will see. You and others that have commented about California and how this does not offer any help for those homeowners are absolutely correct.

Craig, I am going to leave your comment up this one time, but I would suggest that the next time you decide to write a blog, that you not do it on someone else's post.

Susan, I responded to the e-mail that you sent me with the same question, and I provided a link for you.

Anja, unfortunately you are right, this will not offer any help for California.

George - It will be intersting to see how much benefit we get out of this. I guess only time will tell. BTW Craig has left this in more than one place today. It is a copy and paste comment.

Bill I think that we will be able to use it more here in the Northeast than many other parts of the country. Even though we have also seen a decrease in prices, many communities especially here in Connecticut have managed to hold their own.

Also thank you about informing me about Craig has been doing. That is not something that should be encouraged so I am deleting his comment.

MAR

George,

You summed it up best right here: " but it will be a source of false hope for many more ". I don't see this plan helping anyone. When you apply the Loan Level Price Adjustments the rates are prohibitive. For example, a borrower with a 620 would need to pay 2.25 points just to get to a par rate, meaning a bank or a broker would still need to charge a point or more to be profitable.

Click here for the Fannie Mae LLPA from the FNMA Selling Guide for more details.

Am I missing something or is this is just another example of a whole lot of nothing? People want low rates and that simply aren't getting them!

-Sean

George. I understand that completely. However, was the consumer advised of the risks of taking that mortgage when it was sold to them???? Or, are they now paying over and over for having a risky mortgage instrument.

First they are sold a risky instrument and now they are denied any relief because their mortgage was risky.

OF COURSE IT WAS RISKY. That's why they need relief now.

Sean, it is more nothing than something, for reasons like you first made. It sounds good until you start digging into it, that is why I said it might help those with good credit, but as those credit scores start to drop the cost starts to go up and making this less of an option.

Lenn, if they did the loan with me they did. But you also need to under stand the people who got EA loans were those that were just on step above subprime. These were 30 year fixed loans with a high interest rate (about a point) for people with low credit scores, high ratios, and usually high LTV's. These were people who JUST HAD TO HAVE THE HOUSE and would not wait to clean up their credit and get themselves in a position to be able to do a regular loan. The rules allowed them to have it now, they wanted it now, so no matter what you said all they heard was what they wanted to here THEY COULD GET THE LOAN. Even those that could not qualify for an EA or even a suprime loan kept on looking and looking because NO was not an option, they wanted the house and they were going to get it one way or another. Well they got it. I bet you could find hundreds of Loan Officers that would tell you the same story. I know that there are many that want to make the homeowner the innocent ones in this, but they are far from it.

I have had several questions about the program thanks for the analysis.

Terry, glad this was able to able to provide the answers.

I appreciate the simplified review. I've been looking through a lot of information on this for the past week to make sure I was clear.

Under the plan the current mortgages must be Fannie or Freddie loans. This means that those who this bill will help were at one point "conforming" borrowers. This does nothing for the sub-prime borrowers who got their loans through the 100's of lenders no longer in business (Option 1, Argent, Freemont, Descion One, the list goes on...). They're the ones with ARMs that had 5 and 7 point margins attached to them, so now that LIBOR is at 2.25 they're still paying a rate of 9. Criminal, that brokers sold loans with margins that high.

What this plan does is help those people who are currently paying off mortgages guaranteed by the GSEs (Government Sponsored Entities). The same GSEs who were told by the government to loosen their guidelines to get more people into homes with mortgages backed by the GSEs. Looks like a bit of CYA to me.

That mortgages have to be current doesn't address the fact that people who need help are behind.

Expect to tell a lot of people who walk into your offices looking for help, "sorry... you don't qualify".

The Titanic had more room on their lifeboats than this plan has.

Christine glad this helped to simplify it for you.

Michael your assesment of the situation is accurate, and that has been the problem write along with all of these programs, very few borrowers are able to qualify for them. This one might help a few more but it is not what it was made out to be, and Loan Officers like miyself are the ones that are having to deal with the angry people who think that this will help them. We end up being the bad guys while the bad guys that put it together go around taking the bows.

So many changes it is hard to keep up. Good thing I work with great loan officers that keep up to date.

A lot to digest so thanks for breaking it down into a more simple format. I have to agree with a lot of the posts though...I'm not sure how many people that it will actually help or what true effect it will have on the market as a whole. Thanks again, Ralph

DeAndrea, these days it seems like a full time time to keep up with the changes.

Ralph we should know the answer to that very soon, just like we did with the other programs, and unfortunately it will probably not perform much better.

MAR

As normal... Political "LIP SERVICE". Thanks for the post. I like you, think that the number of people this will help is much lower than the current administration will admit.

MAR

David I hope that we are wrong, but I would be surprised if we are.

MAR

Have you heard from anyone who may be helped by this program? I have had numerous phone calls and e-mails but have yet to find anyone who fits the guidelines as presented thus far.

Phil I have not had a lot of calls yet, but the few that have called are not even close to qualifying.

MAY

George..... For the new Obama refinance program for borrowers with a LTV of 105% or less, do you think the Obama administration will come out and help borrowers refinance if their loan isn't backed by Fannie Mae or Freddie Mac. I would qualify on all fronts for this Du Refi Plus refinance program, except my current loan isn't a GSE (Fannie or Freddie), so now I am still stuck without a refinance option. Please let me know your thoughts on if other programs might be coming down the pipe. Thanks.

MAY

Eric, I have not heard of anything that they are planning to do, but depending on where you are there might be a local program to help you. We have one here in Connecticut, so if you are in Connecticut we can talk about it, if not you should contact a local Loan Officer and ask him/her if your State has one as well.

JUL

We purchased in 07 for 685,000.00 put 265,000.00 down. We are trying to re-fi since we lost so much of our own money/security security. A few hundred a mo with lower rate would help how we feel. They are telling me under this Obama re-fi plus we now need to impound taxes and ins. Is that true?

We did conventional 30 year put 265,000.00 down and I am so frustrated we live in the small house and lost our security.

Chase (Our existing mortgage holder) has taken since 1/30/09 to complete the re-fi. We are supposed to close today, but I now trust no one.

hat do you know?

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