Home Affordable Refinance Program 2.0

Homeowners can start applying for the government's revamped refinancing program today. But much like the first time around, experts say many borrowers will see it as too little too late.

 

 

The program is intended to help borrowers who owe significantly more on their home than what it's currently worth. It expands on the original Home Affordable Refinance Program, or HARP, which was created to help borrowers who owe up to 105% of their home's market value to refinance their mortgage, and was later expanded to those who owed up to 125%.

 

This newest incarnation, dubbed HARP 2.0, removes the 125% cap, allowing borrowers who are deeply underwater to get a new mortgage at a lower interest rate and with more affordable monthly payments. To qualify, borrowers must have either a Freddie Mac- or Fannie Mae-backed mortgage.

 

While experts say the new HARP will help more borrowers -- roughly 11 million homeowners are underwater, according to data and analytics firm CoreLogic -- they point out its limitations.

There may be delays

For starters, the whole process could take months. Lenders who underwrite mortgages manually can start processing refinancing applications this month, say spokespeople from Fannie Mae and Freddie Mac. But those who depend on an automated software system to underwrite mortgages must wait until updates are made, says Brad German, a Freddie Mac spokesman. (Many lenders rely on the automated system.)

Those lenders won't be able to start processing applications and delivering loans until at least early February for Freddie Mac-backed mortgages and until March for Fannie Mae-backed mortgages.

 That's not the worst of it, say experts: Some borrowers might not be able to qualify at all
The program requires that borrowers have missed no more than one payment during the past year and none during the past six months, says Keith Gumbinger, vice president at HSH Associates, a mortgage-data firm. If they don't meet this criterion, they'll have to wait until they do in order to qualify.


Also, borrowers who've already refinanced through HARP are ineligible. "It's a nice little step, but (it's) not really going to get the housing market restarted," says Ira Rheingold, executive director of the National Association of Consumer Advocates, whose members include attorneys that represent distressed homeowners.


What's more, the program is entirely voluntary. Lenders are not required to refinance mortgages for underwater homeowners. (The government doesn't provide incentives for lenders to participate in HARP.)


Many homeowners who qualified for the existing HARP program were turned down because lenders were unwilling to take on that risk, says Gumbinger. Lender resistance may also derail some borrowers' attempts to refinance under HARP 2.0. It's up to each lender to determine whether they'll participate in the program. (Freddie Mac lists participating lenders on its website.)


That said, experts say some aspects of refinancing will get easier. For example, borrowers who apply to the same lender to whom they make their monthly payments won't have their credit scores checked, they point out, and won't be required to provide documentation proving their income. The lender will simply call the borrower's employer to confirm job status. That could come as relief for borrowers who've recently experienced a pay cut or a ding to their credit score. (Estimate your credit score for free.)


Is it worth it? Gumbinger points out that qualifying homeowners stand to save thousands of dollars over the life of the loan by refinancing to a lower rate. However, the program does not reduce mortgage principal, so even after successfully refinancing, borrowers will still remain underwater, he says.

Market Overview for Maricopa County December 2011

Total Market Overview  

Maricopa County							DECEMBER	2011
1 MONTH OVERVIEW				# of Expired & Cancelled listings	AVERAGES
Price range 1,000s	# of Active listings	# of Pendings & AWC	Pending Ratio		# of Closings Last month	Average List Price of Sold Homes	Average Sold Price	List to Sales Price Ratio	Days on Market (Agent)	Days on Market (Cumul)
0 - 99,999	3,199	5,952	186.1%	826	2,762	$ 64,859	$ 63,968	98.6%	81	88
100,000- 124,999	1,183	1,745	147.5%	194	798	$ 113,436	$ 111,827	98.6%	79	91
125,000- 149,999	1,315	1,535	116.7%	184	737	$ 137,627	$ 134,997	98.1%	74	87
150,000- 174,999	996	1,105	110.9%	146	539	$ 162,733	$ 158,692	97.5%	72	82
175,000- 199,999	1,036	797	76.9%	146	471	$ 188,346	$ 182,659	97.0%	88	97
200,000- 224,999	623	461	74.0%	84	240	$ 212,904	$ 206,879	97.2%	79	89
225,000- 249,999	784	532	67.9%	106	283	$ 237,514	$ 230,218	96.9%	81	96
250,000- 299,999	1,194	694	58.1%	157	373	$ 275,856	$ 267,203	96.9%	102	117
300,000- 349,999	784	379	48.3%	100	191	$ 325,308	$ 315,365	96.9%	82	85
350,000- 399,999	711	269	37.8%	87	189	$ 376,577	$ 364,090	96.7%	91	102
400,000- 449,999	481	142	29.5%	50	73	$ 424,665	$ 409,980	96.5%	74	81
450,000- 499,999	386	126	32.6%	57	85	$ 475,937	$ 452,130	95.0%	105	118
500,000- 749,999	995	249	25.0%	110	151	$ 594,676	$ 569,116	95.7%	124	142
750,000- 999,999	571	112	19.6%	64	54	$ 857,337	$ 788,250	91.9%	204	224
1 million +	1,089	114	10.5%	96	66	$ 1,794,429	$ 1,567,323	87.3%	229	271

Should I Buy a Brand New Home or a Foreclosure?

 

Buyers need to be very careful in this market when deciding which type of home to buy.  Many buyers feel that purchasing a foreclosure is going to be the best deal for them. This concept, however, is a fallacy in some cases.  Since Maricopa County has a very low level of listing inventory at this time and buyer demand is high, most listings are priced at market value or above.  The only time we see a property under market value is in a short sale situation when the property is distressed or has a poor floor plan.  

In most cases the bank-owned inventory is priced according to the condition of the property.  The banks are now pricing their homes over market value due to the demand and the fact that most of the properties end up in a multiple offer situation.  Most bank-involved properties are not in move-in condition and require new paint and flooring at the very least.  What appears to be a good deal, may not be so good if the buyer purchases a property at market value and then must deal with repair issues and and upgrading the house.  These extra out-of-pocket costs will put the buyer into an instant negative equity situation.  In the event that they had to sell the property again in the near future, they would be up-side-down.  In some cases, it is better for a buyer to purchase a regular resale that is priced slightly higher than market value and is in move-in ready.  In the case where a buyer wants to have a pool, it is much more cost effective to buy a house with a pool already in ($10,000 value) rather than purchasing a new pool ($30,000-$60,000+).  

Example:  Property appraises for $125,000.

1 - Buyer A purchases a property slightly under market value that appears to be a good deal at $120,000.  Buyer spends $20,000 to upgrade appliances, carpet, paint, window coverings and backyard landscaping.  Now he has spent $140,000 and is now $15,000 up-side-down.

2 - Worse yet, Buyer B buys the same house and spends $20,000 to upgrade appliances, carpet, paint, window coverings and backyard landscaping.  He also adds a pool at $30,000.  Now the buyer has spent $170,000 and is approximately $45,000 up-side-down.  His new pool has a $10,000 value and the new upgrades he put in have little or no value to an appraiser.  

3- Buyer C buys a resale home, the same model as above with a pool.  Buyer pays $135,000 cash for the home and has no out-of pocket expense and is now $10,000 up-side down.

Who is the smarter buyer?  An appraiser will give a $10,000 adjustment for a pool at the highest, no adjustment for window coverings or new carpet or paint.  

What happens if these buyers need to sell their home unexpectedly?  This economy is scary.  What if the buyer gets laid off from their job and is forced to sell?  What is the buyer transfers with work? 

Another option for buyers now is new construction.  The prices are a little higher, but the buyer gets a brand new home with a warranty.  These houses are also built better in many cases as well, with a more energy efficient ratings due to low E windows, higher seer A/C and 2 x 6 construction.  Some new home builders such as Meritage and Beazer have included solar panels for solar hot water and furnace; low flow faucets, spray foam insulation, double flush actuator toilets, insulated water heater and raid bird weather sensing irrigation.  In the long run, the buyer ends up saving thousands every year in energy costs and tax credits.  They still have to spend money to put their window coverings in and do their landscaping, which easily puts the buyer into an instant negative equity situation.  The best deals on new construction are found with the builder's spec homes, which are completed homes or almost complete homes.  The builders want to get these off their books and therefore, the buyer can negotiate the price and sometimes landscaping and window coverings.

In summary, we believe the best deals right now are with some short sales, builder spec homes, or reasonably priced re-sale homes.  It is important to find the home that closely matches the buyer's tastes and one that will require minimal upgrading or repairs.  It is worth making offers on the bank-owned properties as long as the buyer does not over bid and as long as they know that it is difficult to get an offer accepted.  If the buyer has cash, they must be extra careful, as they will not have an appraisal to protect their price point.  

We have seen some increase in value in the past few months and now is a great time to buy as home prices are down 70% in some cases off their highs several years ago.  Please call us anytime to discuss your buying needs.