Refinancing underwater mortgages may get easier

Last fall the president instituted a plan to allow people whose mortgages are insured or owned by Fannie Mae or Freddie Mac to refinance at new, lower rates even when their mortgage exceeds the value of their house (To find out if your mortgage qualifies try these two sites: Loan Lookup at Fannie Mae and My Mortgage at Freddie Mac ).

The program is described briefly here in our post Underwater Mortgage Refinance: New Rules and if your mortgage is on the Fannie or Freddie list you should look into the process now.

If your mortgage is not with Fannie or Freddie the new program (if passed as proposed) would let you refinance, as long as you are current with your loan. It is estimated that 3.5 million homes would qualify and that they would save an average of $3,000. The catch is that unlike the first program, this one has to pass Congress, and the Republicans don’t like it. If you would like to see this happen, let your Congressional Rep know.

The requirements are more than they are under the Fannie and Freddie programs.

— Eligibility requires that you be current on your mortgage payments for the last six months and that you have missed no more than one payment in the previous six months.

— You need a credit score of at least 580.

— You cannot be more than 40% underwater on your loan, owing, say, $210,000 on a home now worth only $150,000.

Lenders who go along would get a mortgage that is insured by the FHA, so they cannot lose money if you decide to walk in the future. Claims under this feature would be paid with a small tax on banks.

Also, the loan process would be streamlined under the proposal. Banks would need only to confirm that homeowners have a job. (Unemployed homeowners also would be eligible for the refinancing plan, but would be required to provide more detailed financial information.) Borrowers would not need to submit tax returns or get a new appraisal of the property.

The program would be open only to mortgages below the FHA’s conforming loan limits, which are $271,050 in low-cost areas and as much as $729,750 in Southern California and other high-priced markets.

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