August 31, 2010 (FreeRateUpdate.com) – Homeowners are finding it particularly difficult these days to sell their homes. According to the National Association of Realtors, demand for single family residences has dropped to a 15-year low. Home purchases fell 12 percent in June. In July, they more than doubled the previous month by plunging 27 percent. It is reported that 1 in 5 homeowners is behind in his or her payment. As if the news weren’t bad enough, foreclosures are expected to rise severely this year and next. With these disheartening statistics, homeowners are not left with many options. Fortunately, however, refinancing current mortgage loans is one option, and a viable one at that. Moreover, various government programs are making refinances possible, even for underwater mortgages, and borrowers do not have to have an FHA-insured loan to qualify. Low mortgage rates are definitely strong factors that fuel the refinancing boom. Conforming rates, as of this writing, are 4.125 percent, which is slightly higher than last week’s record low of 4.00 percent, with 0.7 to 1 point origination. As mortgage loan officer Jason Paul from AmCap Mortgage observed, “[We are] absolutely seeing a significant rise in applications for refinances because mortgage rates are so low.” The Mortgage Banks Association reported that refinance applications increased by 17 percent and caused a surge of 13 percent in overall mortgage applications. Last year, the Obama Administration released a new program, the Home Affordable Refinance Program (HARP,) to help homeowners refinance their mortgage loans. This program allows homeowners who owe more on their house than its current value to refinance into better loan terms. The program does not reduce principal amount owed. However, it does permit homeowners to take advantage of ultra low mortgage rates. HARP is also beneficial for interest-only borrowers, adjustable rate mortgage borrowers, and balloon payment borrowers because it allows them to reduce the amount of interest they would pay over the life of the loan.

To be eligible, the residence must be owner-occupied and the homeowner must be current on his or her mortgage payments. This means that he or she has not missed any payments, does not have more than one 30-day late in the past 12 months. If the loan was originated in less than 12 months, then the homeowner should have never missed a payment. The amounts owed on the mortgage should not exceed 125 percent of the current market value of the property. For example, if a home appraises for $200,000 but the homeowner owes $275,000, then he would not qualify for HARP. However, if he owes less than $250,000, he does qualify. The loan must be owned or guaranteed by one of the GSEs, Fannie Mae or Freddie Mac. The homeowner must also have the reasonable means to afford the new mortgage payment (i.e. steady income.) The program is set to expire June 10, 2011.

The U.S. Department of Housing and Urban Development (HUD) just announced that it is expanding its refinance program. Starting September 7th, 2010, the Federal Housing Administration, which is regulated by HUD, will offer non-FHA borrowers who are underwater on their loans and current on payments the opportunity to refinance into an FHA Short Refinance option. In order for prospective borrowers to qualify, lenders must agree to write off at least 10 percent of the unpaid principal of the mortgage, which should bring the borrower’s combined loan-to-value ratio less than 115 percent. Borrowers must meet standard FHA underwriting requirements, occupy the property as a primary residence, and their credit score must be equal to or better than 500. This is exciting news especially for homeowners who are denied a loan modification through their banks. Interested borrowers typically foresee financial hardship, primarily due to loss of income, and would greatly benefit from an FHA Short Refinance.

FHA Commissioner, David Stevens, believes the new program is a much needed “lifeline” for American families. Although the success of the FHA Short Refinance has yet to materialize, many have high hopes because it gives borrowers and lenders another weapon to battle negative equity in the current flagging housing market.