In a post from March, I mentioned the high expectations for the most recent stimulus bill, but was a little cautious of how it would be implemented. You know how it goes. You get hyped up to see a movie, a play, a ballgame, etc., and it just doesn’t live up to your expectations.
You can apply that same concept to one of the provisions in the stimulus bill – the one that was designed to help home owners who are underwater.
The premise of the refinance plan allowed home owners to refinance their homes up to 105% of its current value. That sounds great, but it may not be working out quite as well as anticipated.
- loans that currently have Private Mortgage Insurance (PMI) are not eligible for the program. Mortgage servicer companies are not allowing loans with PMI to be transferred by refinance to another mortgage servicer.
- that would be an easy hurdle to pass if PMI companies would provide coverage for these new loans up to 105%, but they are not. The max coverage in the state of Georgia is 95%. Without PMI companies providing the coverage, banks won’t allow the loans.
- anyone with a first and second mortgage probably does not have PMI on the first mortgage. That makes the first mortgage eligible for the program and there is no limit on the Total Loan to Value (TLTV) from the stimulus bill. The TLTV is figured by combining the first and second mortgage and dividing that number by the value of the home.
The problem here is that second mortgage companies MUST agree to the terms of the new first mortgage, and on average, current guidelines set by second mortgage companies will not allow the TLTV to exceed 90%.
If there is a second mortgage on the home, it will most likely need to be paid down in order to qualify to refinance the first mortgage.
- some home owners may have a TLTV on the first and second mortgage below the 105% limit, but the refinance plan only allows the first mortgage to be refinanced. This reverts us back to the previous problem of getting the second mortgage company to agree to the terms of the new first mortgage.
While this portion of the plan sounded great in its construction and approval phase, its application is a bit frustrating. It seems the plan really only applies to home owners who put 20% down when they bought their home (so there was no PMIon the loan) or to a home owner that has already paid off their second mortgage.
That is all well and good, but those two groups weren’t exactly the targets the bill had in mind. There are rumors of modifying the stimulus bill to help more home owners qualify, but how long that takes remains to be seen.
Clay Jeffreysis a Mortgage Consultant with Dunwoody Mortgage Services, Inc. and writer for “Blog Pertaining to the Acquisition of a Mortgage to Purchase a Domicile.” Dunwoody Mortgage Services seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing. For more information about Dunwoody Mortgage and available programs, please visit www.dunwoodymortgage.net.
