Refinancing Laws

The federal government has responded to the credit crisis of the mid-2000s by instituting new laws and programs designed to help the struggling employer nationwide. To qualify for the majority of these programs, the homeowner must be present on mortgage payments, supply evidence of income and show that the mortgaged property is his primary residence. Furthermore, the programs normally apply to”underwater” properties, meaning the property’s value is below the outstanding loan balance. Note that the overall timeframe before a house goes into foreclosure is approximately six weeks after a notice of default was issued. As of 2009, California permits an additional 90 days before a notice of sale has been delivered to allow more time for lenders and homeowners to operate out a mortgage modification.

FHA Short Refinance

As of September 2010, the Federal Housing Administration (FHA) will allow underwater homeowners to refinance their non-FHA initial mortgages into an FHA-insured loan with a lower interest rate. To qualify, homeowners need to be current on their obligations, possess a non-FHA guaranteed loan, and also have a credit rating of 500. The application applies only to first mortgages of primary residences. Furthermore, lender participation is voluntary. If the refinance is implemented, the creditor must agree to write off at least 10 percent of their existing loan balance to bring the debtor’s overall loan-to-value ratio to no more than 115 percent. The resulting FHA-insured, refinanced first mortgage must be no more than 97.75 percent of the home’s current value. Note that a few states allow lenders to pursue borrowers for loss recovery by means of a deficiency judgment, which may happen following a brief sale (a brief refinance is effectively a brief sale without ownership transfer) or a foreclosure. This legislation depends on if the state is a recourse or a non-recourse state. California is normally a non-recourse state, in which creditors can claim the underlying real estate simply to cure their losses and consequently cannot pursue a deficiency judgment.

HOPE for Homeowners Act

The HOPE for Homeowners Act, a nationwide program enacted in July 2008, enables homeowners to refinance their FHA-insured house loans into cheap, 30-year fixed-rate mortgages. To be eligible, the homeowner must be at risk of default, supply evidence of income by submitting the previous two years’ tax returns and most recent pay stubs, utilize the underlying property as her primary residence, and prove the ability to cover the new lower monthly payments. The caveat is that creditor arrangement is voluntary and future profits have to be shared with the participating lender and the federal authorities if refinancing is implemented.

Making Home Affordable Act

The Building House Affordable Act is a nationwide program that enables homeowners to refinance their own Fannie Mae- or Freddie Mac-guaranteed house loans to achieve lower monthly payments. Note that the loan balance is not reduced, but rather the homeowner may reduce his payments by refinancing into a mortgage with a lower interest rate. To be eligible, the borrower must be present, possess a one- to four-unit house, and utilize the property as his primary residence. Furthermore, this program applies only to first mortgages, which cannot exceed 125 percent of the home’s current value. By way of instance, the borrower’s first mortgage must not exceed $312,500 on a property valued at $250,000.

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