The entire point of using a house as collateral on a mortgage is that if the lending bank is forced to foreclose on the property, they can turn around and sell the property to recoup their loss; as a result, many lenders are leery of accepting as collateral a property that was recently listed for sale but that didn’t actually get sold, since that might imply that they would in turn have trouble selling the property after a foreclosure.

As a result, most lenders require 90 or more days of “seasoning” after a property has been listed for sale before they will consider allowing a refinance of the property; for example, the popular reference site eHow claims that many lenders require a minimum of six months seasoning after listing before a property can be refinanced. At Ethical Homes, however, we have a wide variety of wholesale lenders that we work with who will fund refinance loans on properties originated as soon as one day after the property was officially taken off the market (often referred to as “one day off MLS”).

If you’ve got a property that is currently on the market but that you’re having trouble selling, contact us and we’d be glad to help you evaluate your options and figure out whether refinancing into a lower rate might be a reasonable fallback solution for you.

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With an FHA Streamline refi, you can refinance your current mortgage with a new FHA mortgage; in the process, you’ll (usually) get a refund back of a prorated portion of the Upfront Mortgage Insurance Premium (UFMIP) that you paid when you obtained your original mortgage, and often be able to waive many of the fees that would otherwise apply to your new mortgage, resulting in savings of potentially thousands of dollars versus a traditional (non-streamline) refinance of the same mortgage. Streamline refinances also often allow the borrower to skip the appraisal, adding still more savings while also removing the risk of a low appraisal causing issues with the refinance.

In addition, FHA’s guidelines for streamline refinances are much more lenient than the guidelines for most refinances. Most lenders add overlays to FHA’s guidelines, but as a mortgage broker that works with dozens of wholesale lenders, we have access to programs that still follow most of FHA’s more lenient requirements. Among the features that we can offer include:

• No appraisals. Many FHA Streamline lenders do still require appraisals for streamline refinances, even though that is ostensibly one of the biggest appeals of the streamline refinance. Since we can offer true no-appraisal FHA Streamline refinances, we can help many borrowers whose properties whose values have declined and are now “underwater” or otherwise ineligible for a refinance because of property condition/value.

• Condo units & buildings do not need to be FHA approved. Most FHA Streamline lenders require the condo development to be on FHA’s list of approved condos; if they aren’t, the condo association must spend weeks preparing paperwork to apply for approval, and then wait 6-8 weeks (or longer) to get that approval back from FHA. Because we can do FHA Streamline refis without requiring condos to be on the FHA approval list, however, we can avoid those delays, and also do those refinances on condos that wouldn’t be able to get approved because the don’t meet current FHA guidelines.

• Condo associations do not need to complete a condo questionnaire. Most FHA Streamline lenders are requiring these questionnaires even for condos that are already FHA approved, meaning borrowers often have to pay fees to their condo association to have the questionnaire completed, and then based on the contents of those questionnaires, their refinances might be denied because of issues such as a high percentage of units rented out (aka high “investor ratios”), low budget reserves, or ongoing litigation against the condo association. Since we can do FHA Streamline refinances without requiring condo questionnaires, we can avoid those issues entirely.

• No income or employment requirements. Most FHA Streamline lenders insist on all borrowers being currently employed with stable income, meaning many of the people who are in the most need of a refinance to reduce their monthly payments (i.e. those who have lost their job or had their hours/wages reduced) are barred from getting the help that they need. We can originate FHA Streamline refinances without requiring current employment or stable income, so that borrowers who just need some help reducing their payments in order to get back on their feet can do so without getting caught in a Catch-22.

• No debt-to-income ratio (DTI) maximums. Most FHA Streamline lenders have maximum ratios of monthly debt payments vs. current income, which again hurts many of the borrowers who are in most need of a refinance (e.g. ones who have hit a rough patch and needed to use their credit cards more than they would prefer to tide them over). As long as the refinance will provide a “Net Tangible Benefit” to the borrower (e.g. reducing their payment, or getting rid of an adjustable rate to make their payments more stable), we can do FHA Streamline refis without regard to current debt/DTI levels.

Note that many of the features above do result in slightly higher rates for the borrower, so for borrowers who don’t need to take advantage of them, we don’t advise using them just to make the loan process more convenient.

Got an FHA mortgage now, and interested in exploring your options for an FHA Streamline Refinance? Contact us and we’d be glad to go over your scenario with you and see if one might make sense.

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HARP refinances allow homeowners who are “underwater” on their current mortgage to potentially refinance and take advantage of current low interest rates, and also allow borrowers who are not underwater to potentially streamline their refinance process and/or reduce the costs or documentation needed for their new loan.

HARP loans, however, are only available to homeowners whose mortgages are currently owned by either Fannie Mae or Freddie Mac, so the first step in determining if you are eligible is to check to see if either of those Government-Sponsored Agencies (GSAs) does own the first mortgage on your property. (Note that the ownership of your mortgage is completely independent of the servicing company that you send your mortgage payments to, or the lender who initially issued you your loan; most loans in the current mortgage market are bundled up and re-sold behind the scenes without the borrower knowing or in any way being affected by that change, and Fannie Mae and Freddie Mac are the largest purchasers of those mortgage bundles in the US.)

Fannie and Freddie have set up websites where you can check to see if they own your mortgage:

• Fannie Mae Lookup

• Freddie Mac Lookup

Be sure to check both sites, and when using those sites, first use the name and address that appear on the billing statement for your mortgage, even if those might not be exactly correct. If you don’t find a match that way, also try other common variations of your name/address that might have ended up in Fannie/Freddie’s databases; in particular, if you still have the settlement docs from when you got your mortgage, try any variations that appear on those documents.

If your mortgage does appear to be owned by one of those GSAs, then you may be eligible for a HARP refinance. Feel free to contact us and we’d be glad to help you figure out the rest of your potential eligibility for a HARP refi.

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The biggest news in the announcement was that the maximum loan amount for HARP refinances is being raised from 105% of a home’s current value to 125% of that home’s current value. Under the current (105%) guidelines, a homeowner who owes, say, $321k on a home worth $300k would not be able to refinance, since $321k is 107% of $300k, and is thus outside the current limit; under the new guidelines, that same homeowner with a $300k house could refinance even if they owed up to $375k (125% of $300k).

Don’t expect this change to have an overnight impact, though. When the HARP plan was originally rolled out, it took a month or two for lenders to start offering it, as they had to design entirely new internal systems to deal with it, and the pricing on it in terms of fees and rates were initially abysmal; it was only after lenders had some time to work out the kinks in the program and see how much market demand there was for it that pricing became reasonable and the mortgage brokers were able to start using it to legitimately help borrowers. (Also delaying the 125% program will be the fact that as far as I can tell SIFMA, the regulator for mortgage bond markets, hasn’t yet approved allowing bonds for the new 125% version of HARP mortgages to be sold. Presumably the Obama administration will get that resolved quickly, but it’s one more delay in the process.)

(Also, for those who think that this change might be enough to pull the economy out of the recession: don’t hold your breath. A recent report from the Comptroller of the Currency indicates that, among other things, a quarter of all homeowners who have already had their mortgages modified to reduce their payments have already gone delinquent on their new, lower payments within 60 days of the modification, implying that the poor financial habits that got a lot of people into the current mess aren’t going to change just because one of their monthly bills was reduced.)

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We worked closely with Melissa to make sure that we understood her needs completely before she arrived in-country, and were thus able to help her focus her time once she arrived on the properties that were most appropriate for her; during her search, we also gave her the information she needed to quickly evaluate those properties, and once she identified the one that she wanted–a sunny, open condo in the heart of the thriving Penn Quarter–we helped her negotiate a price for it that was nearly $60k below the seller’s initial asking price.

Melissa says:

With Ethical Homes’ help, I managed to select a condo that met all my needs in just one week’s time. Sweth’s dedication to helping me find a place that met my criteria (which, at times, weren’t all that clear, even to me) was never in question. When I wanted more information or had obscure questions, Sweth provided the answers. The real pleasure in the experience was feeling like Sweth was out to get me exactly what would make me happiest, rather than telling me what would be best for me and would be twisting my arm to go with his option. I’m confident in my decision making; Sweth gave me the information I needed so I could make a sound choice. Sweth is detail-oriented and perceptive. He uses these traits to his advantage, and provides the perfect amount of info–he’ll skim over topics if you clearly aren’t interested, but he’ll also research particular issues and get you all the info you need.

She goes on to comment on how much she appreciated the systematic approach that we bring to the process, including how we sent her reminders to do things like change her utilities and forward her mail:

This attention to detail made the process so much easier. The effort put into each step wasn’t just tied to finalizing the transaction.

And she gives one last comment about her new purchase:

P.S. I love my apartment! High ceilings are the best!

Update 2/19/09: Melissa B. was so happy to use our services for her original purchase that when the time came for her to look into refinancing, she contacted us, and we were able to help her reduce her mortgage payments by nearly $350/mo!

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If long-term rates were rising but short-term rates were staying low, sticking with an ARM might make sense for more risk-tolerant homeowners who wanted to try to “ride out” their ARM in hopes that the savings on lower short-term rates now would offset the higher rates in the future; similarly, if short-term rates were rising but long-term rates were staying low, some owners might opt to stick with the lower ARM rates for now, betting that they would still have a chance to refinance before long-term rates rose significantly.

Since all signs point to both rates continuing to rise for the forseeable future, however, I'd advise most holders of ARMs (or hybrid ARMs whose fixed-rate period will expire in the next few years) to at least look into refinancing to lock in a fixed rate. Many homeowners who bought in the DC area in the last few years did so with less than 20% down; for many of those homeowners, refinancing now would also present a good opportunity to take advantage of the accumulated equity that the hot market has created for them, by allowing them to refinance without a second mortgage or PMI if their current equity is greater than 20% of the value of their home.

Interested in finding out about your options for refinancing? Drop us a line and we would be glad to talk to you about your situation, including showing you some scenarios for how your monthly payments could change over the next few years if you do or don't refinance. If you think refinancing might make sense for you, we'd also be glad to put you in touch with a good lender.

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