The most popular of all mortgages for both purchasing and refinancing is the 30 year mortgage. Often, when borrowers are refinancing, they are only looking for a lower monthly mortgage payment which makes choosing a 30 year mortgage the most feasible option. The downside of this refinancing move is that after a borrower has already paid the mortgage for several years, this 30 year choice adds years back to the mortgage. Basically, the years of monthly paying are wiped out and the borrower is actually starting all over. With a 30 year mortgage term, the first few years of mortgage payments are mostly interest payments. On the other hand, refinancing to a 15 year mortgage term can usually lead to an increase in the monthly mortgage payment. Since mortgage rates are currently so low, the actual difference depends on how high the original mortgage rate was. With 0.7 to 1% origination fee, 30 year fixed mortgage rates are at 3.500% and 15 year fixed mortgage rates are at 2.875%. It is possible that the proposed 15 year monthly mortgage payment may be the same or only slightly higher than the current mortgage payment. For borrowers who can manage the monthly payment, a 15 year mortgage is completed in half the time and the interest savings is huge. Since the principal amount of the loan is paid down at a faster pace, less overall interest is actually paid on the loan. At today’s mortgage rates, there is an approximate $45,000 savings in interest payments per $100,000 with a 15 year mortgage when compared to 30 years.

Choosing between 30 years and 15 years when refinancing is a big decision, but one worth investigating. Borrowers should request Good Faith Estimates for both mortgage terms in order to accurately weigh the difference in the monthly mortgage payment. Although a 15 year mortgage can be a major long term savings, it is not for everyone. Putting any additional strain on a household budget may not be worth the risk and, therefore, has to be an individual decision.

FreeRateUpdate.com surveys more than two dozen wholesale and direct lenders’ rate sheets to determine the most accurate mortgage rates available to well qualified consumers at a standard .07 to 1% point origination fee.

Each entity has set forth guidelines for Harp 2.0 refinances. The main objective of these refinances must be to reduce the monthly mortgage payment. The major change with this program is that the use of appraisals has been eliminated in order to help underwater borrowers. This means they have done away with the maximum loan to value for both the 30 year and 15 year mortgage. Besides the obvious benefit, borrowers also save approximately $400 by not needing an appraisal. At least one borrower must have a source of income that must by verified. Borrowers with one 30 day delinquency within the past 12 months are acceptable provided the delinquency has not happened within the past 6 months.

Since the ultimate goal is to reduce the monthly mortgage payment, Fannie Mae has included a minimum credit score of 620 and maximum debt to income ratio of 45 percent when the new mortgage increases the principal and interest payment by more than 20%. In this instance, verification of income sources and assets to close, if necessary, are required. Borrowers who have had a bankruptcy or foreclosure do not have to meet the standard waiting period and re-establishment of credit for a Harp 2.0 refinance.

These changes with Harp 2.0 have been brought out at a time of historically low mortgage rates in order to get borrowers to refinance mainly underwater mortgages. Current 30 year fixed mortgage rates are at 3.750%, 15 year fixed mortgage rates are at 3.125% and 5/1 adjustable mortgage rates are at 2.500%, all with 0.7 to 1% origination fee. Guidelines have been designed in a way to be beneficial to lenders so that they will be more willing to offer and approve these mortgages for borrowers who have been searching for a rescue. This is the program everyone has been waiting for as refinancing now takes a new turn with Harp 2.0 which will finally help borrowers stay in their homes at a lower cost.

FreeRateUpdate.com surveys more than two dozen wholesale and direct lenders’ rate sheets to determine the most accurate mortgage rates available to well qualified consumers at a standard .07 to 1% point origination fee

Most borrowers have turned to FHA for their refinancing needs due to FHA’s acceptance of lower credit scores. To make the transaction even sweeter, FHA 30 year fixed mortgage rates have been consistently lower than conforming 30 year fixed mortgage rates. Having an overwhelming amount of business, FHA mortgage loans have undergone several changes over the past year in order to protect themselves financially. The most recent change is effective April 18^th when FHA mortgages will have higher annual mortgage insurance premiums. These premiums are paid monthly over the course of the year as part of each mortgage payment. The latest FHA MIP increase is .25% on the loan amount. Although this is a small increase, borrowers can still beat the deadline by getting in their mortgage refinance application now.

Changes are also taking place with conforming mortgage loans issued through Fannie Mae and Freddie Mac. Both government entities have already increased their risk fees for mortgage loans even to borrowers with high credit scores. There is a whole lot talk about other major changes coming down the line for Fannie Mae and Freddie Mac that could have a major impact on the entire mortgage industry. For these reasons alone, homeowners should be watching carefully if they are considering a conforming mortgage refinance. Current conforming mortgage rates are still low enough to be beneficial to borrowers who are looking to save money.

Many homeowners may be underwater in their current mortgages and feel that it is impossible to refinance at this time. This has been a major issue keeping homeowners away from inquiring about a refinance. With tax season here and tax refunds coming in, some homeowners are taking the step to refinance and are bringing cash to the table in order to benefit from the current low mortgage rates. No one knows how long these low mortgage rates will be around for the taking as unemployment decreases, jobs increase and the overall economy slowly recovers.

All homeowners have different needs when it comes for reasons to refinance. It could be to get rid of higher mortgage rates, higher monthly mortgage payments, switching from an adjustable rate mortgage or simply a reduction in the length of the mortgage. The intention of each need is always the same and that is to save money. Diligent homeowners who are aware and watching the changes take place in the mortgage and real estate industry, are stepping off the fence and finding that now is the time to refinance their mortgage before it is too late.

For the most part, the decrease in mortgage loan applications is caused by an increase in mortgage rates. As of this writing, mortgage rates have increased by 0.125 percent over the previous week. The rate of 30-year fixed conforming mortgage loan is 4.875 percent and the mortgage rate for a 15-year conforming loan is 4.250 percent. FHA loans trail closely behind with mortgage rates of 4.750 percent for a 30-year fixed mortgage and 4.000 percent for a 15-year fixed mortgage loan. An increase in bond yields stimulated the increase in mortgage rates, which closely tracks bond yields. The Federal Reserve Bank announced that it plans to purchase $600 billion in government bonds by June 2012, which speculation has caused an increase in bond yields.

Stricter underwriting guidelines have also hindered mortgage loan originations. In order to recover funds lost in the wave of foreclosures, the Federal Housing Administration has intensified its qualification standards. It requires an annual insurance premium of 1.55, which is an entire percent higher than previously charged, to be paid out in monthly increments along with the other monthly costs. The FHA has also attached the upfront insurance premium to the loan-to-value ratio. Hence, if a mortgage borrower has a loan-to-value ratio of up to 95 percent, the upfront insurance premium would increase to 0.85 percent, which is 0.30 percent higher than average. If the loan-to-value ratio exceeds 95 percent, the upfront insurance premium would increase to 0.90 percent. Another harsher stipulation enforced upon borrowers is a higher down payment requirement. Traditionally, FHA borrowers qualified for 3.5 percent down on a home purchase. Today, however, in order to qualify for a 3.5 percent down payment, the borrower must have a credit score greater than 580. If his or her credit score is between 500 and 579, then a 10 percent down payment is the minimum required. If his or her credit score is less than 500, then he or she will not qualify for an FHA loan.

In addition to the difficulties experienced by borrowers, mortgage lenders are also feeling the heat. Fannie Mae and Freddie Mac, the government sponsored agencies accountable for the largest share of mortgage-backed-securities investments, is pressuring mortgage lenders to buyback faulty mortgage loans. The two GSEs blame mortgage lenders for originating bad loans under false pretenses and inaccurate data. Leading mortgage lenders, such as JP Morgan Chase, Bank of America, and Wells Fargo, risk costs as much as $106 billion in order to repurchase faulty mortgage loans or in legal defense expenses.

Despite the bleak outlook, surprisingly mortgage refinances account for over 75 percent of the overall share of mortgage loan applications, according to the Mortgage Bankers Association. Rising mortgage rates and tough underwriting standards may have slowed the momentum of mortgage refinances, but they have yet to halt interest completely. Fortunately, the facts remains that mortgage rates are at their lowest levels and refinancing a mortgage loan still offers many benefits to homeowners.

These higher loan limits were instituted in 2008 when President Bush signed the Housing and Recovery Act. Prior to that time, the conforming loan limit was $417,000 in high cost areas. Since the signing of the Recovery Act, the conforming loan limit has been $729,750 in most high cost areas or 150 percent of the median home values within a metropolitan area. In Alaska, Guam, Hawaii and the U.S. Virgin Islands, the high loan limit is $938,250. In 2008, at the height of the housing crisis, these higher loan limits made refinancing and home buying available to consumers who, otherwise, would have had no where to turn. Backed by the government, the jumbo conforming loan has become quite a popular product over the past two years while it has saved the jumbo mortgage market.

This high conforming loan limit is especially helpful in areas such as California and New York where normal housing tends to be much costlier than the rest of the country. With housing prices down, many borrowers in high cost areas have found that they are eligible for refinancing with a conforming jumbo loan. Even first time home buyers can take advantage of an FHA Conforming Jumbo Loan for their purchase. These loans carry lower interest rates than true jumbo loans with the Jumbo 30 year fixed rate at 4.875% (0.7 to 1 point), the Jumbo 15 year fixed at 4.375% (0.7 to 1 point) and the Jumbo 5/1 ARM at 4.00% (.07 to 1 point).

As the housing market continues to be fragile, the extension of this H.R. 3081 is great news. Without it, consumers would have found the jumbo loan market in critical condition. In reality, with fewer investors for jumbo loans, the jumbo loan market could have come to halt on December 31, 2010 had this bill not been extended. The possible implications could have trickled through the entire housing market creating another crisis. At the current time, approximately 90% loans are going through Fannie Mae, Freddie Mac and FHA. With this latest extension, it is obvious that their book of business will keep growing for another year as the housing market continues to heal. . With conforming loan limits extended until September 30, 2011, consumers can look forward to another year of low interest rates while the government continues to treat the housing market with tender care.

H.R. 6218 is called The Housing Opportunity and Mortgage Equity Act of 2010 (HOME). It is designed to offer refinances directly to homeowners who need help. As other foreclosure prevention programs have failed to prevent further defaults, this bill can possibly reduce foreclosures drastically and reward those who have continued to make their monthly mortgage payments even through economic struggles. With reduced mortgage payments, consumers will have more available cash to spend each month thus stimulating a dragging economy. In addition, this type of refinance can help eliminate strategic defaults and loan modifications.

Following are some of the details of the bill:

-A qualified mortgage is one that is current or in default as long as it is the borrower’s primary residence and is owned or guaranteed by Fannie Mae or Freddie Mac, This residence can be a single family dwelling, one to four family dwelling, condominium or a share in a cooperative ownership housing association.

-Any penalties for prepayment or refinancing and penalties due to default or delinquency would be waived or forgiven.

-The term of the new refinance could be no longer than 40 years.

-The servicer cannot charge the borrower any fees for refinancing.

-Fees for title insurance coverage will be reasonable in comparison with fees for the same coverage available. Any fees associated with the refinance would be rolled into the mortgage.

-The enterprise (Fannie Mae and Freddie Mac) will pay the servicer a fee not to exceed $1,000 for each qualified mortgage that is refinanced.

-There will be no appraisal required.

-In order to pay for this, the old mortgages will be paid off when refinanced. The new refinances will be funded by selling new mortgage securities.

Although lenders believe that they will lose too much money if this bill is adopted, it can probably be the best solution given to date to halt the endless foreclosure issue. It will be interesting to see how this bill develops, what will be added and what will be taken away or even if it will pass. According to Congressman Cardoza’s website, there are about 30 million mortgages guaranteed by Fannie Mae and Freddie Mac. The savings from this program could be tremendous and have been estimated by Morgan Stanley and JP Morgan Chase to be an annual reduction of approximately $50 billion in mortgage payments. While the success of the available current programs is still questionable, this proposed bill which allows almost everyone to refinance could be the answer to accelerating the economy.

As reported by Zillow, according to Fair Isaac Corporation, the creator of the FICO score, 29.3% of today’s borrowers have a credit score below 620 which makes them unable to borrower money for a purchase mortgage. Anyone with a credit score below 620 is very unlikely to be able to obtain financing. Even if this group of people had a large down payment, they would most likely not be able to obtain a mortgage. On the other hand, the good news is that 47% of today’s borrowers have scores above 720 and a total of 71% are able to borrow. Higher credit scores are awarded with the best interest rates available.

Due to tight credit standards and stricter underwriting guidelines, many borrowers today are being turned away from obtaining a mortgage. Years ago, these same borrowers were turning to sub-prime mortgage products as their only financing option. At that time, many of these same borrowers would have qualified for FHA loans but opted for sub-prime instead. In fact, prior to the introduction of sub-prime, there were only FHA loans available to these borrowers. Now, with FHAs exposure in the mortgage market so pronounced, they, too, are further tightening their lending guidelines making it difficult for this 29.3% group of people to obtain a mortgage.

More people have been choosing to clean up their credit and pay off credit cards as credit card interest rates have increased. This is a positive move in an effort to increase their credit scores and make them more eligible to buy a home. Although people have been cutting back other spending while doing this and growth of the economy has suffered, they are becoming responsible spenders. As this movement continues, the percentage of borrowers that are credit worthy and able to buy should increase over time. Just as it took many years for this turmoil to occur, it will take time for the benefits of these actions to be seen.

Although the number of borrowers that are unable to obtain a mortgage may seem high, earlier studies show that nearly 20% of the population had FICO scores below 620 in 2002 when the unemployment rate averaged around 5.7%. Considering the fact that we have just gone through the Great Recession followed by a very slow economic recovery and a very high unemployment rate, this new percentage of 29.3% is not so frightening. Reflecting on the fact that 71% of borrowers do qualify for a new home loan, things may just improve when borrowers realize that they are in this category and able to take advantage of historically low interest rates.

***CORRECTED 9/29 AT 11:35 AM- ZILLOW FOUND 71% OF BORROWERS QUALIFY FOR A PURCHASE LOAN, NOT A REFINANCE

The National Association of Realtors announced this morning a 7.6 percent boost in home sales for the month of August over home sales in July. NAR reported a seasonally adjusted annual rate of 4.13 million home sales for August; July home sales, which are the most disappointing of the year, were 3.84 million. According to NAR data, 34 percent of the home sales reported for August were distressed homes, whereas distressed homes accounted for 32 percent of the home sales for the month of July. Chief economist for NAR, Lawrence Yun, says that although the expiration of the home buyer tax credit in April slighted the recovery of the housing market, the market “… is trying to recover on its own power.” He adds that sales could improve further, “…provided the economy consistently adds jobs.”

Ultra-low mortgage interest rates are definitely strong incentives for homeowners to refinance their mortgage loans. Conforming fixed mortgage rates, as of this writing, are 4.00 percent for well-qualified borrowers, which are lower than Tuesday’s reported rates of 4.125 percent, with 0.7 to 1.0 point origination. Current 15-year rates are 3.5 percent, which are also slightly less than Tuesday’s rates of 3.625 percent. Such low rates have motivated some homeowners to refinance their loans. As the Mortgage Banks Association reported that refinance applications increased by 17 percent.

In addition to positive home sales and low mortgage rates, the Obama Administration has implemented two programs to help homeowners refinance their mortgages: HARP and the FHA-Short Refinance program. The Home Affordable Refinance Program (HARP,) which was launched last year, helps homeowners who are underwater on their mortgage to refinance into better loan terms. The program does not reduce the principal amount owed on the loan, but, it does allow homeowners to take advantage of favorable mortgage rates. The FHA-Short Refinance program, which was put into gear earlier this month, aids non-FHA borrowers with negative equity by reducing their mortgage loan balances. Such borrowers must be current on their payments in order to qualify for this program and lenders must agree to write off at least 10 percent of the unpaid principal.

Despite historic low mortgage rates and creative government programs, stronger economic factors are involved: strict qualification standards, expensive closing costs, which can range from 3,000 dollars to 5,000 dollars, increasing job loss, and decreasing property values. The FHA-Short Refinance program is a good example of the enforcement of such stringent qualification requirements. Not only does the program require lenders to write down a minimum of 10 percent of the debt owed, which seems highly unlikely, but also the program requires potential borrowers to meet standard FHA underwriting requirements, such as occupying the property as a primary residence, maintaining a credit score equal to or better than 500, and sustaining steady employment for at least two years, preferably with the same employer. Moreover, the Federal Housing Administration also requires any bankruptcies to be at least two years old, provided the home borrower has had perfect credit since the bankruptcy discharge, and any foreclosures to be at least three years old with pristine credit since.

These restrictions are only amplified by the backdrop of increasing unemployment and bankruptcy filings. The Department of Labor predicts the unemployment rate to reach 10.1 percent by October, which is the worst employment slump since post-WW II. Without steady income, homeowners cannot qualify for a mortgage loan refinance, let alone afford a mortgage payment, regardless of how reduced the new payment is. Plus, the National Bankruptcy Research Center reported 127,028 bankruptcy filings for the month of August. The number of personal bankruptcy filings for this year is more than 1 million, which is nearly 8 percent higher than last year. Tough underwriting guidelines not only discourage homeowners from refinancing their mortgage loans, but also make refinancing nearly impossible to accomplish.

The current mortgage market is embracing historically low mortgage interest rates. Unfortunately, these low rates are only helping qualified borrowers. With credit history and credit scores still playing a major role in the mortgage refinancing business, borrowers with lower credit scores are paying higher interest rates or just not qualifying at all.

Taking a look at the government rescue programs, HAMP (Home Affordable Modification Program) has helped only 340,000 borrowers out of 3 to 4 million borrowers who needed it. With this program, borrowers must prove to the government that they are faced with a severe financial crisis that is making it difficult for them to make their mortgage payments. As of November, 2010, unemployed borrowers will no longer be able to apply for HAMP, but will need to be part of a forbearance program. As the numbers show, most borrowers were deemed to be unqualified. HARP (Home Affordable Refinance Program) has guidelines that make a borrower unqualified if they are delinquent on their current mortgage. The HAFA (Home Affordable Foreclosure Alternative) is a program where the lender and borrower enters into a short sale agreement or a deed in lieu of foreclosure. The borrower must have already qualified for HAMP and has either been unsuccessful during the modification period or decided he is unable to keep the home.

In the past, the FHA (Federal Housing Administration) was the place for homeowners to turn to when they were considered non-qualified borrowers. FHA did not look at credit scores to judge a loan for acceptance.
Now, when this important factor is needed so desperately in order to refinance the masses of borrowers who are on the brink of default, the FHA has changed the no credit score policy and is implementing a minimum credit score for qualification. As most of the population has had their credit scores affected negatively during this financial crisis, it is almost unthinkable about how low credit scores have gone for those who used FHA years ago to purchase homes because their scores were low to begin with. That group of people could today be non-qualified to refinance their loan as many lenders require a credit report for pricing. Even strapped homeowners who are trying to obtain an FHA streamline refinance can find problems along the way. In order to include closing costs into the new mortgage, equity in the home must be determined by an appraisal. With today’s housing prices, that is just not a good thing. Without the appraisal, homeowners must pay closing costs in cash or sometimes pay a higher interest rate on the loan. FHA’s new short refinance program is not intended for the non-qualifying borrower. This program only accepts conventional loans to be refinanced and for those homeowners who owe more than the current value of their home. On top of that, borrowers must be up to date with their mortgage payments.

As times have changed and lending has become tighter, it is clear that even government programs are pulling back on their reins due to their mortgage exposure risk and making it more difficult for non-qualifying borrowers to refinance their existing mortgages. The overwhelming dependence on credit scores and income to obtain a refinance is continuing to put a damper on the housing and mortgage market because so many homeowners have been faced with unemployment and lower incomes. Add housing values to the equation and situation is even worse. If government programs were really helping non-qualified borrowers refinance, the continuous need for newer programs would be eliminated.

Adjustable rate mortgages were the hit of the housing boom. So many people purchased homes or refinanced with ARM mortgages. It was the gold rush of housing as people went for the best deal as fast as they could. The teaser interest rates offered were so low as compared to fixed mortgage rates at that time. With the economy buzzing and equity in homes growing each day, homeowners were confident that they would be able to refinance when the interest rate adjusted. They believed that within that period of time that they held the adjustable rate mortgage, their incomes would increase or they would have a better job. At that time, they would be able to handle the higher payments or would be in a position to refinance again. As time has told us, this did not happen for many homeowners. As housing prices declined, they lost the equity in their homes and started dealing with unpredictable mortgage payments. As unemployment has gone through the roof, their job security is no longer there and their hopes of a better job is forgotten.

Today is another chapter in history. According FHFA, homeowners are more likely to default with an ARM mortgage as compared to a fixed rate mortgage. Today’s homeowners who are able to refinance their mortgages are choosing a fixed rate mortgage. With today’s interest rates so close, the 30 year fixed rate at 4.125% (0.7 to 1% points), the 15 years fixed rate at 3.625% (0.7 to 1% points) and the 5/1ARM at 3.250% (0.7 to 1% points), it is much more practical and enticing to pick a fixed rate mortgage.

While applications for the 30 year and 15 year fixed rate mortgage continue to increase, applications for ARM mortgages are on the decrease. The risk of an ARM mortgage is too much for today’s homeowner to handle.
There are just too many if’s in the picture for them to take an ARM, too much uncertainty in the future. The housing bust has taught current homeowners that only under very limited circumstances should an ARM be sought and will make sense. If a homeowner knows for certain that they will only be living in the home for a few years prior to the ARM adjusting, then it might be the right decision. For homeowners who are financially in a position to handle any amount of monthly mortgage payment that might occur down the road, then the ARM might be a good choice. These types of borrowers are far and in between as the majority do not fall into either of these categories.

Today’s homeowners are becoming more educated about mortgages and less dependent on what a lender tells them. They are doing their own homework and finding the loan program that is personally good for them. With less and less ARMs being used for refinancing, time will tell if it is the end of the ARM and if it will eventually become obsolete. As cautious homeowners are continuing to refinance to fixed mortgages at a record percentage, ARM refinances continue to decline. Homeowners have learned a hard lesson as they are now making their own decisions and securing their own future.