Everyone wants the lowest and best home mortgage interest rates and costs!
It is common today to see and hear advertisements proclaiming 4.00%, 4.125% 4.25%, 4.375%, 4.50% residential mortgage loan interest rates offers. People naturally shop for the best price and in home mortgages, it is the lowest interest rate, lowest Annual Percentage Rate (APR) and the lowest closing and other costs. No point loans and/or no fee loans are the next item of importance when talking with a lender, Mortgage Broker or Mortgage Loan Officer.
And no wonder, as the home mortgage market has the lowest interest rates in over 35 years. Will mortgage rates stay this low? While no one has a crystal ball, it appears that the US Federal Government will continue to subsidize and control the interest rates at or around the current levels through the remainder of 2009. The driving element in this process is the Treasury discount rate which currently is 3.25%.
In addition, the recently passed bill, The American Recovery and Reinvestment Act (ARRA), also know as the Stimulus Act provides many new guidelines for lenders to use in dealing with consumers (borrowers). One is the Homeowners Affordability and Stability Plan (HASP) which provides for higher then normal 80% loan-to-value (LTV) ratio and is know as DU Refi Plus.
HASP also has a subsection, the Homeowners Affordable Modification Plan (HAMP), which established rules for lenders to use for modifying an existing loan if the borrowers are in a hardship situation such that a delinquency, default, short sale or foreclosure is imminent.
One of the major challenges in home mortgage lending today, from both the lender’s viewpoint and the borrower’s viewpoint is the value of the subject property. With the high amount of delinquencies, defaults, short sales or foreclosures, in many geographical areas properties of all types have suffered a rapid and significant decline in value. This has resulted in many homeowners having a mortgage balance that is higher than the value of their property, which is commonly known as being “upside down” in their mortgage’s LTV.
In addition to the property’s value, many of the under-performing loans are Adjustable Rate Mortgage (ARM) type mortgages where the borrower has a variable payment amount option, also know as “pick-a-pay”, where the monthly payment can be a minimum amount, an interest-only (I/O) payment or a full principle and interest (P & I) payment. When the minimum payment amount does not equal the interest amount required per month, the difference between the minimum payment and the interest only payment is added to the balance of the loan, thus it is called a negative amortization, or “neg am” type loan.
When the first and subsequent adjustment dates of an ARM loan are reached, the lender can increase the monthly amount due as specified in the Loan Note. In many cases the new higher payment amount creates such financial havoc for the borrower that soon there after their payments become delinquent, which in many cases is followed by default, and foreclosure (unless the borrower opts for a short sale, which must be approved by the lender). If the property is taken over by the lender via foreclosure it is usually referred to as a Real Estate Owned (REO) property.
An aspect of the Stimulus Act that addresses the property value issue is the DU Refi Plus program where the borrower can refinance the current loan up to a maximum of 105% of the current first mortgage amount. If a second mortgage or Home Equity Line of Credit (HELOC) is also in place the HELOC lender will have to re-subordinate their position to the new first mortgage.
To qualify for the DU Refi Plus program, the current first mortgage must be owned by either the Federal National Mortgage Association (FNMA), also known as Fannie Mae, or the Federal Home Loan Mortgage Corporation (FHLMC), also known as Freddie Mac. To determine if a loan is owned by Fannie Mae or Freddie Mac, you can go to the following links and enter the subject property address and borrower information as indicated:
Under the Homeowners Affordable Modification Plan (HAMP), the borrower must contact the current lender who services their loan and request information about their Loan Modification program. Most lenders have such a program and can supply an application, financial statement and the other forms needed for them to start their review process.
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