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Obama’s home refi – why you can’t get it

Well Obama says he has a new mortgage refinance program – but what you see is the old Home Affordable Refinance Program (HARP) for those not behind on your mortgage payments in what is called the Making Home Affordable Program (MHA)’s Home Affordable Refinance Program (eligibility requires: (1) The mortgage must be owned or guaranteed by Freddie Mac or Fannie Mae, (2) The mortgage must have been sold to Fannie Mae or Freddie Mac on or before May 31, 2009, (3)The mortgage cannot have been refinanced under HARP previously unless it is a Fannie Mae loan that was refinanced under HARP from March-May, 2009, (4) The current loan-to-value (LTV) ratio must be greater than 80%, (5) The borrower must be current on the mortgage at the time of the refinance, with a good payment history in the past 12 months )

plus the FHA Refinance for Borrowers with Negative Equity (FHA Short Refinance) for those not behind on your mortgage payments but owe more than your home is worth, and with a loan that is not insured or guaranteed by FHA (eligibility requires: (1) Your mortgage is not owned or guaranteed by Fannie Mae, Freddie Mac, FHA, VA or USDA, (2) You owe more than your home is worth, (3) You are current on your mortgage payments, (4) You occupy the house as your primary residence, (5) You are eligible for the new loan under standard FHA underwriting requirements, (6) Your total debt does not exceed 55 percent of your monthly gross income, (7) You must not have been convicted within the last 10 years of felony larceny, theft, fraud, forgery, money laundering or tax evasion in connection with a mortgage or real estate transaction).

Now if you can get past the above, you need to find a mortgage servicer that is in the program and wants to do the loan with you. And here getting the new goodies, like slashing mortgage insurance premiums for certain homeowners who participate in its streamlined refinance program for FHA loans, gets complicated (the FHA insurance premiums are cut on some refi loans starting June 11, but only if the existing loan was insured by FHA before June 1, 2009).

Now the government/FHA does not require the lender to verify the homeowner’s income, employment or credit score, and since no appraisal is required, the homeowner can be underwater – except when the mortgage servicer adds their own requirements for the hell of it – or more likely to justify why you are not getting the lowest interest rate available for that refi (which of course justifies their getting more for your new loan when they sell it to Fannie/Freddie).

So we have banks requiring a minimum credit score (640 with income and asset documentation, 660 without income and asset documentation, and 680 on high-balance loans between $417,000 and $729,750) to refinance, because the FHA allows lenders to “overlay” their own credit score or other requirements on the new loan – as long as they do not call those “overlay” requirements FHA requirements. And the banks do like to “overlay” so as to deny you the lowest possible interest rate – and operations like RPM Mortgage which sells its loans to “investors” like Banks require the overlay because the banks they sell to require the overlay (another reason to prefer a small bank in your neighborhood to the national operations with these “overlays” – but even here small banks often must do the overlay because they sell the loan to large banks that require it).

But the overlay varies a bit – with Wells Fargo requiring a 640 credit score when it buys this type of loan from others, but only requiring a 600 credit score when it originates them itself. Chase has its own credit standards overlay – again to justify not offering a lower interest rate – but claiming they are just trying to be “good stewards of the FHA insurance fund”, wanting good marks from the FHA when it evaluates the performance of the loans sold to the FHA. And while any delinquent loan cost is reimbursed by the FHA, it is not enough to cover the time value of money from the time the cost is incurred and when the FHA pays it – so they need the higher interest rates and higher value of the loan when it is sold.

Yeh, right. And those requests for certified letters (of a good reason for a PO Box from the post master of a prior address where you lived because you had a P.O. Box number and that is suspicious) are just to improve the process – not to make you go away.

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