Underwater on your mortgage? This program could help
Susan Tompor/Detroit Free Press
21 December 2015
What would stop someone from making a move and filling out forms to save an extra $100 or $200 a month on a mortgage payment? Especially if that person lived in a hard-hit housing market and could qualify for a limited refinancing deal that arose out of the housing collapse?
More than 30,000 Michigan homeowners fall into the bucket of people who could take action to get a break but haven't yet for a variety of reasons, including being overwhelmed by the rules. Michigan ranks among the top five states in the country with eligible homeowners who could tap into a money-saving federal program offering refinancing relief.
Now is the time to make a move. Homeowners who owe more on their house than it is worth have until the end of 2016 to act under the Home Affordable Refinance Program, or HARP. And you really want to move earlier to take advantage of low mortgage rates now and not wait until HARP expires roughly a year from now, when rates are expected to be higher.
More than half of eligible Michigan homeowners live in metro Detroit, according to the Federal Housing Finance Agency's data as of June 2015. Under HARP, borrowers can refinance without an appraisal in many cases and regardless of how far their homes have fallen in value.
Where are these homes? Roseville's 48066 has the most eligible homes in a single ZIP code in Michigan; the federal government counted 599 eligible mortgages under the HARP rules. Other Michigan cities with a significant number of potential applicants include Taylor, Redford, Detroit, Lincoln Park, Westland, Eastpointe, Lansing, Port Huron, Garden City, Wyandotte, Highland Park and Warren.
Hamtramck's ZIP code of 48212 had 53 HARP-eligible loans, while Troy's 48084 had 24 eligible loans, based on the latest data.
Why didn't people make a move? Many times, some people aren't sure they're looking at the real deal when a letter pops up out of the blue with an offer to refinance under HARP.
Mike Paige, mortgage loan officer for Bank of America Home Loans in Livonia, said he has worked on HARP refinances at various banking centers with seniors who received mailings and phone calls about HARP but did not refinance to a lower rate because they suspected a scam.
They only took action much later, after talking face-to-face with a friend or banker about HARP, Paige said.
"Unfortunately, many had rates well above market for years."
It's not unusual for homeowners to receive a letter from a lender about HARP. Michigan has so many areas where homeowners could qualify for a HARP refinance that some lenders from various parts of the country are using public records to target mailings to area homeowners. The mortgage must be owned or guaranteed by Fannie Mae or Freddie Mac.
"We've heard that since the program was launched in 2009, people have received many offers and don't know what to believe," said Stefanie Johnson, public affairs officer for the Federal Housing Finance Agency in Washington.
"But this program is for real, and HARP is not a scam."
As we move into the final year for HARP, more public outreach and solicitations could be expected. Nationwide, it is estimated that 429,379 homeowners still are eligible, according to the Federal Housing Finance Agency's estimates as of June. In Michigan, there were 33,327 homeowners eligible.
Many HARP-eligible homeowners are in Florida, Illinois, Ohio, Georgia and California. That estimate includes homes that have a mortgage balance that's greater than $50,000 and an interest rate on a mortgage that is 1.5% above the market rate. The homeowner could have, at most, one delinquency in the prior 12 months.
The loan must have originated on or before May 31, 2009.
About 3.367 million mortgages were refinanced under HARP from April 1, 2009, through October 2015. Most of the refinancing involved primary residences, but some involved second homes.
Michigan saw 223,288 refinances under HARP from 2009 through October 2015.
"There are definitely folks that could take advantage of this that have not," said Nick DeMeester, housing manager for GreenPath Financial Wellness, a Farmington Hills-based housing counselor.
Many times, he said people are unaware of the program when they come in for housing counseling or credit counseling.
DeMeester said it's always possible for con artists to use publicity on a refinance program as a way to scam someone, but a sign of a scam is when someone promises to save your home and charges a fee prior to any service being provided.
Homeowners never want to make a payment to anyone other than a mortgage company or sign a deed over to someone else promising help.
To be sure, HARP was not the easiest program to understand in its early days in 2009, and there were plenty of hurdles that made it easy to get frustrated and rejected. But several changes were announced in October 2011 — such as eliminating the need for a new appraisal on the home in many cases.
"Some of the people who may have been denied in the past could get approved now," said Bob Walters, chief economist for Detroit-based Quicken Loans. "There's no cost or obligation to find out if you're eligible."
The goal of HARP is to help homeowners who couldn't qualify for a traditional refinance program because they now owed more money on the house than it was worth. Under HARP, they could refinance out of high mortgage rates to lower rates and make their monthly mortgage payments more affordable.
A key point to consider: Borrowers who refinance under HARP would be able to reduce the balance owed much faster if they take advantage of low rates on a shorter-term mortgage, say one for 15 or 20 years.
Among metro areas, the Detroit-Warren-Dearborn area ranks No. 3 in the country, with 18,011 potential homes that could reduce their mortgage payments each month by refinancing under HARP. The top two areas are Chicago and New York.
The good news is that eligible homeowners have roughly a year left to do something. HARP would have expired Dec. 31, 2015. But it was extended again in May and now is set to expire on Dec. 31, 2016.
Looking into HARP now, if you'd qualify, is particularly important, given that most economists expect interest rates to nudge up in 2016. The Federal Reserve raised short-term rates slightly Dec. 16 — ending seven years of near-zero rates and taking the first step in a journey to drive the federal funds rate back to a more "neutral" level. The Fed now has a target range on short-term rates of 0.25% to 0.50%.
Mortgage rates are expected to nudge up further next year, especially if the Fed raises rates three times more as expected in 2016.
"Sooner is better than later," said Don Bleuenstein, national sales director for Troy-based Flagstar Bank. "While rates aren't at record lows, they are still very much at historic rates."
One doesn't have to go with the first lender to send a mailing about HARP or even only to his or her own loan servicer. One can shop a few lenders within a week.
In general, mortgage rates currently could range from the high 3% range to the mid 4% range for a 30-year mortgage. The range could be about the mid 3% range to the low 4% range on a 15-year mortgage, Bleuenstein said.
The actual rate would depend on how much you owe on that house, compared with what it's worth; whether you have a second mortgage or home equity loan, and your credit score. Bleuenstein noted that it is easier than in the past to qualify for a refinance under HARP if you have a second mortgage or home equity loan.
As for why people aren't making a move, Bleuenstein said some people don't want to refinance at all, others keep waiting for rates to go lower and some might have mortgages that are in a $50,000 to $60,000 range, where the benefits after closing costs could amount to a savings of only $30 or $50 a month.
He noted that Flagstar has marketed the HARP program to its customers who qualify and, as of two months ago, had a remaining 157 customers who remain eligible.
HARP-related mortgages amounted to about 1% of Flagstar's mortgage closings so far in 2015, compared with north of 10% in 2012, Bleuenstein said.
Jenn Reese, senior director of business operations for Detroit-based Southwest Housing Solutions, which offers HUD-approved housing counseling, said some people might have avoided HARP because they heard horror stories about being denied for the program from their friends, neighbors or co-workers.
Others, she said, might not be organized and do not want to fill out all the paper work, such as information about your income. After all, lenders do not want to refinance to a lower rate if you'd not be able to make the payments in the future anyway. Retirees can tap into HARP, though, especially if they have income from a pension, Social Security or investments. But some might not want the hassle of filling out forms.
"They just don't want to bother. It is a lot of work. They ask for a lot of information," Reese said.
Again, if you think you qualify, it's better to review your mortgage soon, especially if you could save a good deal of money. In general, some experts say a homeowner who has a mortgage rate that's higher than 4.5% to 5% could consider looking into the program.
"You're going to get one last look at HARP as the program ends," Flagstar's Bleuenstein said.
These are some basic hurdles to qualifying under HARP:
•The mortgage must be owned or guaranteed by Fannie Mae or Freddie Mac.
•The loan must have originated on or before May 31, 2009.
•You must be current on your mortgage payments at the time of the refinance. But you are allowed one late payment in the last 12 months, as long as it did not occur six months prior to the refinance.
• You must more on the home than it is worth, and the outstanding mortgage balance to the home value — or loan-to-value ratio — must be greater than 80%. You can calculate your Loan-to-Value ratio using an online calculator.