Waiting to Refinance May Be a Mistake Patch.com
Many Fountain Valley homeowners may want to consider refinancing. Rates are at historically low levels falling to as low as 4.3 percent locally. But there’s another incentive related to a change in federal law.
A so-called credit risk retention rule, which is part of the federal Dodd-Frank Act, is expected to take effect in about a year. The rule requires lenders that securitize mortgages to retain 5 percent of the credit risk.
Homeowners would be required to have at least 25 percent equity for a rate-and-term refinance or at least 30 percent for a cash-out refinance. Some estimates indicate that fewer than 50 percent of American homeowners have that kind of equity.
So it would appear that fewer Americans will have the opportunity to refinance. Not only that, but they may end up stuck with a high-cost mortgage.
California is listed as one of the states with equity-poor homeowners. Some lost $100,000 or more in equity when the home market crashed in 2007 and 2008.
Fewer homeowners underwater
CoreLogic, a provider of mortgage data, released data on November 29 showing that 22.1 percent of all homeowners with a mortgage owed more than the value of their home during the third quarter of 2011. This represents a slight decrease compared to the previous quarter.
Underwater homeowners have been unable to refinance into lower mortgage rates, since most lenders require at least some home equity in order to approve a new loan. Mortgage rates remained extremely low for most of November, according to HSH.com, but homeowners without equity have been unable to take advantage of these low mortgage rates. Applications for a home refinance declined by 15.3 percent during the week ending November 25 compared to the previous week, according to the Mortgage Bankers Association (MBA), even when adjusted for the Thanksgiving holiday.
CoreLogic says that 10.7 million homeowners were in negative equity during the third quarter of 2011 and an additional 2.4 million borrowers had less than five percent equity, which the company refers to as “near-negative equity”.
Refinancing and negative equity
According to CoreLogic, “There are nearly 22 million borrowers, or 45 percent of all borrowers, who have mortgages with an 80 percent or more loan-to-value (LTV) ratio, and 69 percent of those mortgages have above-market interest rates of 5 percent or more. Conversely, only 54 percent of borrowers who have less than 80 percent LTV have above-market interest rates. While above-market interest rates make refinancing at today’s historically low rates a cost-effective step for qualified homeowners, it can be more difficult for borrowers with above-average LTV ratios to qualify for refinancing.”
If you have low or negative equity and have been keeping current with your mortgage payments, there may be an option for you to refinance with the expanded “Home Affordable Refinance Program” or HARP. This program is designed to allow homeowners to refinance into a lower mortgage rate even if they lack enough equity for conventional refinance programs. Check with your lender to see if you qualify for a HARP refinance.
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Is there a temporary relief loan program for California homeowners who have a tough time paying the mortgage?
I heard about the new loan programs that allow home owners to refinance their mortgage to a lower interest, but those who qualify need a decent credit, certain income, and their homes need more equity than what they borrow. But what about those who are really suffering and have none of those above?
Unfortunately then you will join the ranks of those that have or are losing their homes. No credit, no income and no equity means pay for what you signed for. Sorry but not my fault you overextended yourself, buying way more than you could afford. Do not think my tax dollars should bail you out because of your foolish dreams, and not living in reality.
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