New HARP Program reality

This week everyone I speak with seems to think the new HARP 2.0 changes will save everyone’s home and lower their payment. NOT TRUE. Lets slow down and look at the reality here.

Veronica Clemons, a spokesperson for Wells Fargo Home Mortgage, says the company is waiting for specific guidelines and requirements from Fannie Mae and Freddie Mac in order to put the changes into practice. She adds that once the company’s mortgage servicing team has the guidelines in hand, “it will take us some time – depending on the complexity of the guidelines – to make the necessary systems changes to begin offering the new enhancements to our customers.” The GSEs’ regulator, the Federal Housing Finance Agency(FHFA), says Fannie and Freddie plan to issue guidance with operational details about the HARP changes by November 15th.

Since industry participation in HARP is not mandatory, implementation schedules will vary as individual lenders, mortgage insurers, and other market participants modify their processes,” FHFA said.

Bank of America says it will participate in the enhanced Home Affordable Refinance Program announced by the administration, and it expects the new guidelines and eligibility criteria to go into effect after December 1st, 2011. “Despite ongoing economic challenges, nearly 90 percent of our customers remain current on their mortgage,” BofA spokesperson Rick Simon said. “HARP helps these homeowners who remain current on their mortgage with options to lower their monthly payment when, otherwise, conventional funding options are limited.”

The GSEs have removed the 125 percent loan-to-value (LTV) cap under the program. Now any borrower with anLTV ratio above 80 percent is eligible for a HARP refinance, as long as the loan was sold to Fannie or Freddie prior to May 31, 2009, and the borrower is not delinquent on their payments. Since HARP was launched in 2009, nearly 900,000 loans have been refinanced through the program. Government officials estimate that an additional 1 million homeowners will receive assistance under the new guidelines.

In its announcement of the program changes, FHFA encouraged borrowers to contact their existing lender or any other mortgage lender offering HARP refinances. This is where you need to be careful, millions of homeowners have been pushed into signing new Adjustable Rate Mortgages with heavy closing costs which only benefits the lender. A lot of people are unfamiliar with the GFE and TIL ( Good Faith Estimate and Truth In Lending ) documents to clearly see what they are getting themselves into.

If you or anyone you know needs help clarifying these documents, please let us know. There is never any cost for our consultations.

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Case Study 1

CASE STUDY:

Mr and Mrs V are retired and they live in a beautiful home. They own an investment property with 8 units which is the bulk of their income. Social security totaling $1,800 a month along with the rents they receive from the income property (units are paid in full) is all they live on. The property has some expenses for up keep each month and they stay busy keeping tenants in place. The V’s have a portfolio as follows:

  1. $650,000 variable First mortgage with Wells Fargo Home loans
  2. $90,000 fixed second mortgage with Wells Fargo Home Loans
  3. $155,000 Savings Account with Wells Fargo earning .04% interest
  4. $95,000 Mutual fund with Wells Fargo financial advisors earning 0% profit ( lost 8% in last year)

Over the last 4 years their rental income has dropped and they find themselves having to draw some savings each month to pay their mortgage on their home. They needed help.

When I first met with the V’s, I was amazed at the size of their home. They obviously had more room than they needed. They considered selling the home and downsizing, but the value wasn’t as high as the two mortgages.  Three different realtors just told them to short sell. I went over the process of short sales and told them there was no way that Wells Fargo bank would “approve” a SS as they have too much money in their Wells Fargo bank account. They can afford the home by Wells’ viewpoint and even if they got it sold, the bank would surely seek judgment against them for the loss on the loan. It is imperative that you show a hardship and first outline where your funds are and what they are used for to get a short sale approved. Strategic default is a no-no and lenders are aggressively pursuing people with legal action.

The V’s have an elderly mother living with them so the money they have in the bank is to help care for her. The banks don’t care about that. They see $100k in “liquid” savings, and they expect you to pay. I performed a forensic audit. Looking at the entire picture, we planned 3 strategic moves to help prepare the V’s for a process of increasing their investment money and reducing their overall debt and obligations saving them over $3,500 per month.

  1. We submitted for a property tax reduction which lowered their annual property tax by $700.
  2. We moved 50% of their liquid savings into an indexed annuity with a guaranteed 6% annual compound rate so their $75,000 would grow to over $250,000 guaranteed with no risk of loss in just 15 years.
  3. Used the $700 annual savings to buy life insurance that would also grow tax free and can be willed to anyone.
  4. We moved $90,000 AND the balance of the $155,000 to a small credit union for safe keeping and care for their mother.
  5. After 90 days, their statements were all in order. We then were able to get approved for a Short Sale on their residence along with written acknowledgement of no deficiency by the lender.
  6. They rented a smaller home reducing their mortgage payment each month by $2,000 and plan to wait a year to buy another home. Or they may actually move into one of their free and clear units.
  7. Lastly, we helped them create an LLC and placed their free & clear property in the LLC protecting it from legal predators. Updated all their leases and have the tenants paying the LLC instead of paying them in their name. Now the rental money goes into the LLC which separates their personal social security income from the rental (business) income and enables them to file a tax return for the LLC “through” their personal tax return gaining them over $3,000 a year in additional expenses that they never wrote off before.

If you know anyone who may need objective advice on their banking or real estate portfolio, we can help identify any potential risk and help them organize their relationships for long-term peace of mind.