Mortgage Refinance - Understanding the Challenges that Lending Institutions Face Today
Consumers everywhere are wondering how to deal with new mortgage rules and regulations, which are aimed at preventing another mortgage crisis while protecting the rights of consumers. The rules, although in effect for three years already, are being seen as quite favorable by consumer advocates, who say that some of the new policies should be praised, such as the drastically-reduced use of prepayment penalties, the maintenance by lenders of more extensive escrow accounts, and transparency in practice.
Unfortunately, despite all of the challenges that now face lenders as a result of the new rules, many borrowers, especially those with bad credit will find that they will have a harder time getting approved for a loan if they can't prove their ability for responsible and timely loan payback. But there are government programs which have been designed to help.
The Home Affordable Refinance Program, also known as HARP, helps homeowners whose properties have decreased in value to refinance and get low rates. Available to those homeowners having a Fannie Mae or Freddie Mac loan, this program has been extended to December 31, 2013 due to its popularity. Over 145,000 new HARP loans were created in three months alone, representing record volume.
When homeowners qualify for the HARP mortgage program, they can refinance with any lender that is participating in the program, but only if their loan comes it at under 125% of the current value of their property.
In line with the new rules for those with bad credit, qualifying for HARP also comes with its own set of rules:
- No late payments on the current mortgage should be on record for the last 12 months;
- The new lower payment on the HARP mortgage must be an amount the homeowner can afford;
- New loan payments must be more affordable than those on the current mortgage.
The Home Affordable Modification Program, known as HAMP, offers help to homeowners who are employed, but are struggling to make their mortgage payments due to the housing crisis. The goal of the HAMP program is to make mortgage payments both more affordable and more sustainable for the long term. As of June 1, 2012, the HAMP program has been expanded to include those homeowners who weren't previously eligible, including:
- Those who defaulted on trial payments while being on a HAMP trial period plan;
- Those who want to apply for modification on a property they intend to rent or one that is already rented, but that the homeowner doesn't consider to be their primary residence;
- Those who defaulted on their HAMP permanent modification payments, and therefore lost good standing;
- Those whose debt-to-income ratio fell below 31%, disqualifying them from previous HAMP requirements.
Getting Help From Government Programs
If you meet HARP criteria, the best place to go to get a mortgage refinance is via your loan company, as only they can tell you whether or not you qualify. In the event that your HARP application gets rejected by an underwriting service, your refinance will have to come from your current company. But be aware that if you have a second mortgage, you may still be able to refinance your first mortgage at up to 125% of the current value of your property, provided your second mortgage's lender agrees.
If you meet the criteria of the HAMP program, you will need to contact your lender. You will also need to find and organize your paperwork, because your hardship, debts income and assets will all need to be documented. And this needs to happen before you even obtain a trial modification. But permanent HAMP modifications can save homeowners up to $500 per month, so it's well worth the call to your lender.
With both programs, time is definitely of the essence. The sooner you call about getting help with your mortgage, the better. But be aware that if you had bad credit or have a history of late or non-payment, that you will have to do some work to prove that you can make your payments on time, every time.