Can the Government Help You Refinance Your Mortgage Loan?

Interest rates on mortgage loans are the lowest we've seen in decades. So it's no surprise that so many homeowners are rushing to refinance their homes. In addition to seeking lower rates, many homeowners are also trying to switch from adjustable to fixed mortgages.

The problem is that millions of Americans have lost equity in their homes over the last two years, and in many cases these losses have been significant. So a lot people are asking the question: "Can the government help me refinance my mortgage loan?"

The answer to this question is that it depends. In certain refinancing scenarios, government assistance is available for struggling homeowners. In other scenarios, homeowners will find themselves all on their own. To understand this distinction -- and to find out if you qualify for government refinance assistance -- we must look at the stipulations of the Homeowner Affordability and Stability Program. This is the official name for what is commonly referred to as the "mortgage relief" plan.

The short answer is yes, the federal government offers assistance for certain homeowners who are trying to refinance their homes. Specifically, these are people whose loan are now owned by Fannie Mae or Freddie Mac. To qualify for this type of assistance, homeowners must also be current on their mortgage payments, and they cannot be underwater in the loan (owing more than the value) by more than five percent.

This program is primarily designed for people who are unable to refinance their homes due to a lack of equity. Traditionally, mortgage lenders have required homeowners to have a certain level of equity in order to refinance -- 20% equity in most cases. As a result of the housing crisis, however, this is a major problem for many homeowners. So the government is offering refinance assistance for people in this situation, and it comes in the form of the Homeowners Affordability and Stability Plan.

How to Get Government Refinance Help

Here's what you need to know about refinancing your home through this new government plan. Some of this is a recap of what we have discussed above:

• You must be current on your mortgage payments.
• Your home loan must currently be owned / backed by either Freddie Mac (click here to check) or Fannie Mae (click here to check).
• The mortgage in question must be for your primary residence, not an investment property.
• If you meet these preliminary requirements, you should visit MakingHomeAffordable.gov for more information.
• At some point, you will have to apply for refinancing through your current lender (or another primary lender). Contrary to popular belief, you do not apply for refinance assistance directly through the government -- you have to go through a lender. The federal government may back the loan and offer incentives to lenders, but the government does not actually handle the applications or make the loans.
  

As you are surfing the web to gather additional information on this subject, be on the lookout for non-governmental websites that are made to look like government sites. A lot of lenders and other financial companies have created websites that have all the hallmarks of a federal site -- the red, white and blue color schemes; the bald eagles and American flags; etc. If the website address does not end with ".gov" then it's probably not a government site.

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Housing Market Bottoms 2009 - 2011: When Will You See the Bottom?

When will we see the bottom of the housing market in this country? When will the market start to rebound? Is my area at the bottom already, or do we still have a ways to fall?

These are some of the most common questions among home buyers right now. It's easy to understand why. Home prices have been dropping consistently (and often significantly) in most cities across America. In some places, like California and Florida, the housing market has tanked. There's just no other word for it. Homeowners are finding themselves upside down in their mortgage loans, and record-breaking foreclosures and buyer shortages are depressing values even more.

So everyone wants to know: For Pete's sake, when will I see the housing marketing hit bottom and begin to recover in my area? Will we see a bottom later this year in 2009, in 2010, or even later in 2011? Let me start with the obvious. Nobody can predict when, exactly, the housing bubble will hit bottom in a particular area. After all, we don't have crystal balls or magic tea leaves to read (though some "experts" seem to act that way).

With that being said, it's possible to look at a variety of economic clues and make a general prediction for housing market trends. This is what the folks at Moody's do through their website Economy.com. In fact, they recently published a report that predicts when housing markets will hit bottom in metropolitan cities across the United States.

If you want a more basic (and more affordable) look at housing bottoms and when they might recover, check out the latest edition of Money magazine. In the April 2009 issue, they've created a series of maps that show a three-staged series of recovery.

The first map shows metropolitan cities that will recover by the end of 2009, across the United States. These are cities that never saw a big bubble to begin with. These will be the first housing markets to hit bottom, and some of them already have. Some never even dropped at all. These areas include many cities in the Carolinas and Texas.

Their second map shows a variety of cities that may start recovering next year, during the first half of 2010. These include markets that experienced a slight bubble / burst, but have already gone through much of the normalization process. Chicago is a good example of this kind of housing market.

You can probably name many of the cities that appear on the third map, recovery coming during the end of 2010 or early 2011. These will be the last housing markets to hit bottom, and they include the cities that had the biggest (and least justified) pricing bubbles. You can chalk up most major cities in California and Florida on this list, along with NYC.

What a Housing Bottom Means to You

So what does all of this mean, anyway? How does the bottom of a housing market affect you directly? Many of our readers find all of this confusing, and therefore have a hard time applying it to their own lives. Here's a quick guide to bubbles and bottoms, and what they mean to you as a home buyer or homeowner.

First, a quick definition. When you hear somebody use the phrase housing market bottom, they are referring to the point when prices reach their lowest level. Within this context, we are talking about housing prices. The term "bottom" is often (but not always) used in conjunction with the term "bubble," which refers to a period of rising values.

Many cities, like those in Southern California and parts of Florida, experienced huge bubbles over the last ten years -- home prices rose consistently and significantly. So in the wake of the housing crisis, these markets had a long, long way to fall. This is why $500,000 homes are now being sold for $275,000, for example. It's also why so many people are underwater in their mortgage loans, meaning they owe more on the mortgage than the home is worth (in the current market).

• For Home Buyers - The bottom of a housing market is the time when you'll get the best deal on a new house. By definition, the "bottom" means prices have reach their lowest point and will begin to rise again. You can't predict exactly when it will happen, but if you buy a home at or near the bottom of the market, you'll enjoy rising home values for a long time.
• For Home Sellers - People selling their homes have to realize that they may never be able to get back what they paid for the home. This is especially true in the cities that had the biggest real estate bubbles. In San Diego, for example, you'll never sell a house in 2009 for what you paid in 2006 -- the market has simply fallen to far. But the housing bottom is also a positive sign for homeowners, because it symbolizes the end of value drops and the beginning of rising values.

Lastly, it's important to realize that the bottom of a market can be short or prolonged. Imagine a capital 'V' next to a capital 'U' -- and pay particular attention to the bottom of those letters. The 'V' comes to a sharp point and then immediately begins to rise again. The 'U' comes to a more gradual bottom, and it stays there longer.

The same is true for housing markets. They might recover slowly or sharply. How quickly they recover will depend on many factors -- economic stimulus, job creation, credit flow, etc. But that's the subject of another article!

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Can I Refinance My House During a Foreclosure Process?

I received an email yesterday from a homeowner who is facing foreclosure due to default. This is a common question among homeowners right now, so I thought it best to respond in a public (but anonymous) way. Here is the crux of the question:

Is there any way I can refinance my house while in the foreclosure process? I have heard that refinancing is a good way to avoid being foreclosed on. Any advice?

I'm sorry to report that you've been misinformed. Or perhaps you've misheard what somebody was telling you. At any rate, it's very rare to get qualified for a mortgage refinance while in foreclosure, and for one simple reason. Lenders will view you as a huge risk.

In the current economy, I would go so far as saying it's virtually impossible to refinance when being foreclosed on. It's unlikely at any time, but especially right now. That's because the government is encouraging lenders to focus their refinancing efforts on homeowners who are current on their mortgage payments. For those homeowners who have fallen behind on their payments, the focus is on modifying the home loans -- not refinancing.

We recently posted an article on the Homeowner Affordability and Stability Plan, which is what I've just described above. So I recommend reading that article, for starters.

If you are truly in default on your current loan, you should see if you qualify for a mortgage modification. Read the article I linked to above, and you'll find out how to measure your eligibility for this program. I seriously doubt you'll be able to refinance while in foreclosure, but there's a good chance you can qualify for a modification to lower your payments for a period of time.

Learn More About Refinancing and Modifications

We have a section of our website dedicated to mortgage refinancing. So if you'd like to learn more about this subject, that's a good place to start. We also have plenty of information related to the government's assistance programs, modifications and the like. Here are some links to get you started:

• The Refinancing Section of Our Website
• Obama Announces Mortgage Relief Plan
• How Do Home Loan Modifications Work?
• Lenders Who Offer Modification Programs

Let me close by saying there are exceptions to every rule. So don't base your decisions solely on the information I've provided. You need to continue your research beyond this website, and you should start by talking to your lender about your options.

Homeowner Affordability and Stability Plan - Fact Sheet and Links

It's a massive programs that's designed to help millions of homeowners avoid foreclosure over the next few years. But aside from that, many people don't know what the Homeowner Affordability Stability Plan is, or what it's supposed to do. Here's a simple explanation:

What Is This Plan?
For one thing, it's a mouthful. The official name of this program is the Homeowner Affordability Stability Plan, but it's commonly referred to by the media as the housing plan and the mortgage relief plan. This program is a major part of President Barack Obama's overall strategy to get the U.S. economy back on track. It was initially unveiled during a press conference on February 18, 2009, when the president was in Phoenix, AZ. The program is expected to cost $75 billion.

What Is It Designed to Do?
The Homeowner Affordability Stability Plan is intended to help more than 7 million homeowners / families avoid foreclosure. In this respect, there are two primary parts of the plan:



The modification side of the plan focuses on homeowners who are falling behind on their payments and at risk of defaulting. The goal here is to restructure the loan (mainly be reducing the interest rate) in order to make the monthly payments more affordable.

The refinancing side of the program focuses on homeowners who are current on their mortgage payments, but are unable to refinance because of a drop in property values (a common predicament in the current economy).

Who Qualifies for This Plan?
On the refinancing side of things, you must be current on your mortgage payments to qualify, and your home loan must be owned by Freddie Mac or Fannie Mae. It must be a "conforming" loan, meaning the original mortgage amount was less than $417,000 (except in certain expensive cities). You'll need to contact your current lender to find out if your loan is owned by Fannie or Freddie.

On the mortgage modification side of things, the effort is focused on homeowners who are behind on their payments and need help to avoid foreclosure. The home loan must have been originated before January 1, 2009. The unpaid principal must be less than $729,750.

Where Can I Learn More?
To learn more about the eligibility criteria for the Homeowner Affordability and Stability Plan, visit the new FinancialStability.gov website. Look for the self-assessment tool, which you can use to determine your eligibility for assistance. Here's the line:
http://www.financialstability.gov/makinghomeaffordable/

Walking Away From a Home Mortgage - A Rising Trend?

Walking away from a home is the last thing people think about when they actually buy the home. After all, few people consider the worst-case scenario when making a purchase decision. That's just human nature. But these days, in the wake of our economic meltdown, many American homeowners are struggling with this very decision:

Should I walk away from my mortgage loan and accept foreclosure? Is walking away from my home the only option I have left?

In some cases, the answer may actually be yes. Homeowners in certain situations have few other options but to walk away from the home, and this will likely become a rising trend in the coming months.

How does it come to this? How does a homeowner wake up one day and find they have no other options, aside from walking away from the mortgage? Here's the typical scenario:

A couple of years ago, John and Jane actually had some equity in their home. They owed less on their mortgage than the home was worth, so they had some degree of ownership. Then came the subprime mortgage crisis, which was followed by a full-scale economic meltdown. The value of John and Jane's home dropped like a rock, and today they find themselves upside down in the mortgage -- meaning they owe more than the home is worth in the current market.

John and Jane have been watching the news, and they realize that there are some really low interest rates being offered these days. But they cannot refinance because they are significantly upside down in their mortgage. Then things get even worse for the couple. John, the primary breadwinner, loses his job -- another casualty of our troubled economy. Now they are in a situation where they must sell the home, but doing so would not cover the balance of their mortgage, and they cannot afford to make up the difference out of pocket.

It's been called the "perfect storm" for homeowners. Home values drop, jobs are lost, and many people are unable to sell or refinance. Unfortunately, this kind of predicament is all too common right now. Nationwide, nearly 20% of homeowners are upside down in their mortgage loans. In some of the hardest hit cities, like many in Southern California, the percentage of upside down homeowners exceeds 60%. This is why so many people are thinking of walking away from their home mortgages.

Those who have kept their employment status and have no reason to move are in a much better position. They can simply stay in their homes. Their property value may never return to the level it was when they bought the home. But at least they're not in dire straits. They can stay put and hope the housing market recovers enough to boost their equity.

But for the millions of Americans who must sell -- due to job loss or other reasons -- the question of whether or not to walk away becomes more pressing.

When to Walk Away from a Mortgage

From a purely financial standpoint, it seems like an easy decision. When you have no other viable alternatives, walking away from a mortgage (and accepting foreclosure) becomes the only option. But for many homeowners, it's more complex than that. Many people are simply not willing to accept such a loss, so they hang on. And then there's the attachment people have to their homes, which only complicates things further.

CNN Money recently published a collection of stories from real people in this very situation. The homeowners in this article were split in their decisions. One was prepared to walk away, two were against it, and two more will still trying to decide.

So what do the financial experts have to say on this subject. When is walking away from a home the right decision? In truth, only the homeowner can answer this question. And we are in no position to advise you one way or the other. But it might be helpful to hear different people weigh in on this subject, so we have gathered some expert insight for you below:

• In this article by Liz Pulliam Weston (MSN Money), there are three questions you should ask yourself before walking away from your mortgage loan.
• This story from NPR echoes the idea that, in certain scenarios, it makes sense to walk away from a home "especially for homeowners who find themselves upside down."
• Let's hop over to an article by ABC News, in which the authors remind us that a foreclosure can do serious and long-lasting harm to your credit score. But they also concede that many homeowners simply have no other choice.
• This New York Times piece suggests that it's rare for homeowners to abandon their homes, while real estate investors are much quicker to do it.
  

If you are in a situation where walking away from your mortgage feels like the only option, we recommend talking to a debt counselor first. The National Foundation for Credit Counseling is a non-profit group that offers free and low-cost counseling on debt issues. And you can also get advice from a HUD-approved housing counselor.

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Citi Will Lower Mortgage Payments for Unemployed Homeowners

Home Buying News - March 3, 2009 -- Unemployed homeowners with home loans owned by CitiMortgage may be able to lower their mortgage payments to $500 for a period of three months. It's part of a new program being offered by Citi to help struggling homeowners stay in their homes.

As part of its Homeowner Assistance Program, Citigroup, Inc. said it will temporarily lower the mortgage payments for certain borrowers, particularly those who have recently lost a job. Citi announced their Homeowner Unemployment Assist program in a press release that went out earlier today.

The program is designed to help unemployed homeowners stay in their homes, at a time when foreclosure rates are still soaring across the United States. To be eligible for the new program, homeowners must have a mortgage loan that is currently owned by CitiMortgage. Other eligibility criteria may apply as well.

Sanjiv Das, the current CEO of CitiMortgage, said: "We understand the emotional and financial trauma that can occur when homeowners lose their jobs ... and can no longer afford their mortgage payments. Our Homeowner Unemployment Assist program is ... helping homeowners stay in their homes and in their communities while they get their feet back on the ground."

How the Program Works

The benefits for eligible homeowners equate to a three-month reduction in mortgage payments. CitiMortgage will reduce the size of monthly payments due to (on average) $500. To put this in perspective, let's say I currently pay $1,500 a month toward my CitiMortgage home loan. If I were to lose my job, I could be eligible for the Homeowner Unemployment Assist program, which could reduce the size of my mortgage payment considerably, for a period of three months. This would relieve some of my financial burdens while I looked for a new job.

While the Homeowner Unemployment Assist program is a short-term solution, Citi is also making strides toward long-term fixes. They offer mortgage modifications to certain borrowers, as a way of making their payments more affordable for the life of the loan. Citi also provides a variety of counseling services to its customers.

How to Apply for Assistance

If you have a mortgage loan currently being serviced CitiMortgage, and you have recently become unemployed, you may be eligible for their new assistance program. To learn more about it, visit their Office of Homeownership Preservation and look for the link pertaining to the unempolyment program.

Related News:

• Citigroup Proposes Mortgage Modification Program
• How Do Home Loan Modifications Work

Pull the Plug - It's Time to Let Freddie Mac Go

David Moffett, the relatively new CEO of Freddie Mac, announced his resignation today. The official notice of his resignation is predictably positive. He's a great guy, Freddie Mac is a great organization, he enjoyed his time there, etc. But you have to ask yourself, why would somebody resign from a CEO position after only six months?

If you scratch below the surface, it's pretty obvious. Freddie Mac is a sinking ship. They are one of the primary reasons we had a housing crisis in the first place, and now they are sponging up billions of taxpayer dollars to try to right themselves. Who wants to be the boss of all that?

We have long supported the demise of Freddie Mac and Fannie Mae. These organizations are part of the problem, not the solution. Fannie is a relic of the Great Depression, and Freddie was born from an ill-advised attempt to create artificial competition (thanks LBJ).

By their very nature, these organizations create unstable mortgage markets. They do this by offering a secondary market for bad loans. Without Freddie Mac, for example, most primary lenders would have to keep their mortgage loans in house. If this were the case across the board, lenders would be far less inclined to make risky loans to unqualified borrowers. In other words, Freddie Mac removes the "burden" of responsible lending from the shoulders of mortgage lenders. Ask an economist (not a politician) about the causes of the subprime crisis, and at some point they will mention the secondary mortgage market.

Let me say it again, more to the point. Freddie Mac was a primary cause of the housing crisis that wrecked our economy. Now they are seeking more support from the federal government, which means it is coming out of your pocket. You should be angry about this. You should be livid. You should contact your congressman and warn that you hold them responsible for any vote they cast in this matter.

So, here we are at a crossroads in our own financial history. Freddie Mac is once more ailing from a crisis they helped create, and they want you (the taxpayer) to bail them out ... again. I say it's time to pull the plug. Fannie and Freddie are part of the problem, not the solution. They do not deserve another $35 billion in taxpayer dollars. They deserve to be put out to pasture. Could this be the reason they can't seem to keep a CEO lately? My money says yes.

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