Real estateReal Estate is land and anything permanently attached to it, such as buildings and improvements. mortgageA Mortgage is a document granting a lien on a home in exchange for financing granted by a lender. The mortgage is the means by which the lender secures the loan and has the ability to foreclose on the home. outlook in the news does not appear so good even with HARP 2.0 coming online.
According to a recent study by Fiserv, the typical mortgage costs 40 percent less than it did in 2006. That just about mirrors the drop in home prices over the same period.
But there’s more going to this housing recession and the downturn in the housing market than a drop in home prices. Mortgage interestInterest is money charged for the use of borrowed funds. Usually expressed as an interest rate, it is the percentage of the total loan charged annually for the use of the funds. rates have fallen to the lowest levels in more than 60 years. This week, the average interest rate for a 30-year mortgage was 3.8 percent, down a tenth of a percent according to Zillow.
A 15-year loanA Loan is an amount of money that is lent to a borrower, who agrees to repay it plus interest. can be had for about 3.16 percent, which is a new record. Financing and refinancing of homes at these rates would seem to be easy. And while the 10-year wasn’t quoted, one can only assume you could find it for less than 3 percent, plus an average of about .6 percent in closing costs.
Five years ago, it would have been difficult to even imagine how you could lock in a mortgage for 10 or 15 years at around 3 percent. And yet, here we are.
“Continued instability in Europe in addition to the uncertainty caused by the ‘super committee’s’ failure to reach an agreement on a deficit reduction plan has pushed the average 30-year fixed mortgage rate down this week,” said Erin Lantz, director of Zillow Mortgage Marketplace. “Mortgage rates will continue to stay historically low through Thanksgiving week.”
Unfortunately, while many homeowners are still paying around 6 percent interest on their mortgage, apparently they can’t refinance.
One reason they can’t refinance is that home prices keep falling, increasing the number of homeowners who are underwater (with home prices worth less than the amount owed on the mortgage).
Starting in December, the Obama Administration’s revamped Home Affordable Refinance Program (HARP) will go into effect, hopefully allowing underwater homeowners to refinance.
Like all of the Making Home Affordable programs, HARP 2.0 (as it is being referred to) is voluntary, meaning lenders will not be required to offer these loans to their borrowers.
According to CoreLogic, which provides information and analytics on the housing industry, HARP 2.0 includes some key changes that should make it more attractive to lenders, including: Removal of the 125 percent LTV ceiling so that borrowers with significant levels of negative equityYour share of ownership in a company. Stockholders are often referred to as equity investors, because they invest in the equity of a company. are now potentially eligible; reduction of risk-based fees, also known as loan-level pricing adjustments, although the reduction depends on the term of the newly refinanced loan among other factors; representation and warranty relief for the lenders committing loans to the program (likely excluding fraud and misrepresentation); the allowance for the use of reliable alternative valuation models (AVMs) to establish eligibility of the loan-to-value (LTV) ratio.; the ability to re-subordinate existing second liens that had been a significant impediment to refinancing under HARP.
In addition the program has been extended through the end of 2013.
Unfortunately the program doesn’t have a great track record to this pointA Point is one percent of a loan amount.. Fewer than 100,000 underwater borrowers have been able to refinance their properties. While the Obama administration is hopeful that more borrowers will be able to take advantage, it’s hard to imagine these numbers will grow substantially.
But the need is huge. On Ilyce’s radio show this week, she spoke with a woman who has a 6.5 percent interest rate on her loan. She originally put down 20 percent on the property, but her house is worth only about $110,000 instead of the $175,000 she paid eight years ago. Her 20 percent down payment has evaporated, and she is far underwater.
So far, she’s current on the loan, but the future is in doubt – her husband lost his job some time ago and they are starting to struggle with their monthly debt obligations because his new job pays so much less.
The biggest problem is that their mortgage, which a conventional 30-year loan, isn’t owned by Fannie Mae or Freddie Mac. Their loan servicer refuses to tell her who owns the loan, and only confirms that the company is not participating in HARP 2.0. This is another family who could well end up in foreclosureForeclosure is the legal action taken to extinguish a home owner's right and interest in a property, so that the property can be sold in a foreclosure sale to satisfy a debt., and not for trying.
We keep hearing from the major lenders, and the Office of the Comptroller of the Currency (OCC) that everyone is interested in keeping families in their homes. If that’s true, then the numbers of HARP 2.0 loan refinancings should rise dramatically.