When the lender runs the file through the system, there are many factors that determine whether Fannie Mae’s Desktop Underwriter will approve the file. Below, I’ve listed the most important things you can do to improve your chances of getting your Fannie Mae HARP loan approved through Desktop Underwriter.

• Include all of your assets

• Many borrowers do not include all of their asset statements. This extra effort is worth it. DU recognizes extra asset reserves as a positive compensating factor. Some examples of assets that many people leave off are investment accounts, retirement accounts (such as IRA’s and 401k’s) and Money Market Accounts.

• Lower your estimated value

• This may sound odd, but DU checks to see if your estimated value seems correct. If it appears to the tool that your estimated value is excessive, it may turn down your loan or reject an appraisal waiver. Try lowering the value.

• Reduce your loan term to be shorter than 30 years

• This is a big one. DU will often reject a file due to overall risk. While shorter-term loans raise the debt-to-income ratio, it appears DU allows for a higher debt-to-income when coupled with a shorter term loan. Reducing to 25-years often does the trick. One more thing – HARP gives better pricing for loans of 20-years or less, so this may improve your DU approval potential and your rate.

• Add or remove a borrower

• HARP requires that you have at least one person on the new loan from the prior loan. If the file is rejected and there is only one person on the loan, see if adding the other person fixes the problem.  Oddly enough, it works the other way too. Sometimes DU will not like one of the borrower’s credit profiles, so try removing a borrower.

• Be sure all additional income is included

• It is left to the lender’s discretion whether additional income such as a part-time job, overtime, commissions, or bonuses is used. The lender will need more documentation and a history of this additional income in order for it to be used for underwriting, but the increased income will lower the debt-to-income ratio which may be enough to approve your loan scenario.

There are many other factors that DU reviews, but these tips may help you get your file approved after it was initially rejected. The key is to maximize your “positive” compensating factors. More assets, lower debt-to-income, more credit history, and shorter term loans are all positive factors that DU will consider in the determination.

If your lender is not getting the DU results they are hoping for, try these tips or forward this post to the loan officer. You may get the needed push necessary to get your loan approved.

Any loan officer who’s worked on Freddie Mac’s Open-Access program knows they are harder to work with than Fannie Mae. Fannie Mae has approved more underwater homeowners (especially renters) than Freddie Mac.  As a loan officer, I can definitely say that Fannie Mae is easier to work with.

We haven’t received an exact date for the change, but I have seen some Freddie Mac loan approvals that fit the profile of a loan they would previously have denied. For example, Freddie Mac’s system (Loan Prospector) typically limited our loan-to-value on condos claimed as a rental to well under 100% loan-to-value.  I recently had one approved over 100% which is a first for a Freddie Mac HARP loan which was a rental and a condo.

I tried to find an “official” publication from Freddie Mac stating there was a change. With my recent experience, I would definitely consider revisiting your Freddie Mac HARP options if you’ve been turned down in the past.

In many ways, HARP loans are like any other refinance. You have lender, title and escrow fees. In order for a lender to offer a no-closing-cost loan, they require a higher rate which allows the lender to use the profits from the higher rate to pay the fees. This is an important consideration for the reasons I outline below.

There’s an important point to remember when shopping for a home loan. If you want a lower rate, you must pay more fees. If you want lower fees, you must pay a higher rate. Finding the perfect balance should be based on how long you plan on keeping the loan. Lower rate loans will lower your payment and increase the amount of principal applied to your balance, while a lower fee loan can benefit a homeowner with a short term ownership goal.

One of the biggest issues with no-closing-cost HARP loans is that you can only do one. That’s right, you cannot refinance under HARP more than once. Since HARP loans are for underwater homeowners, you will not be able to refinance again until you have equity. If you believe rates will be higher when you have equity, you need to make sure the rate you take on your HARP loan is the rate you want to keep for good. For many homeowners, they are so deeply underwater that they will be forced to keep their HARP refinance until they sell the home.

It’s enticing to get the “no-closing-cost” pitch because it sounds like the loan is cheaper. However, any lender who offers you a no-closing-cost loan could offer you a lower rate with fees…ALWAYS.  Educated homeowners understand this philosophy. For instance, my friend Marie (who’s a loan officer) asked me to do her HARP refinance. When we priced the loan, her first request was, “Keane, I plan on keeping these homes for a long time. Please price my loan with approximately 1% in discount points so I can get a lower rate.” Yes, she was ASKING for higher fees. She understood that this fee paid for a lower rate, which for long term ownership, will benefit her.

I believe that most people who are refinancing with HARP are refinancing to the last loan they’ll ever have on their property. It’s a blessing to be able to lower your rate on an underwater property with a record low rate.

Finally, do not calculate the benefit of a lower rate by only comparing the fees to the payment amount.  With a lower rate, your loan balance will drop faster.  Be sure to review the amortization schedules to see the real benefit of lower rate loans.

Gone are the days of “stated income” home loans.  Today, it’s all about full disclosure and verification.  This can create challenges for business owners as their tax returns are almost always their primary proof of income, and quite frankly, many loan officers do not know how to read them.

There are many, many things that will impact the way a lender determines a business owners income-to-debt ratio.  So many in fact, that I couldn’t imagine squeezing all of them into a single blog post.

For today’s post, I want to focus on the important questions a good loan officer should ask a business owner when taking their application and the reasons why.  This may help you gauge the knowledge and experience your loan officer has in servicing self-employed clients.

• What type of business do you own?  Sole proprietorship/contractor, corporation (type) or partnership?

  • A good loan officer who learns that you’re self-employed should immediately be asking what type of business it is. Without this vital information, your loan officer can’t begin to help. If your business is an LLC, your tax preparer is filing the business as either a Sole proprietorship, partnership or some type of corporation. The IRS does not recognize LLC’s as a business type.  Again, a good loan officer who works with business owners will know to ask about these things.

• Do you own 25% or more in any business?

  • The reason this is important is because we must include the business tax returns for any business that the consumer owns 25% or more of.  In addition, a full review of the business returns may increase the client’s income or decrease their income due to business expenses. It’s understandable that many people do not think they need to provide business tax returns, especially if they rely primarily on wages paid by the business. At the end of the day, any business income separate from W-2 or compensation to officers can be attributed to the homebuyer/owner based on their ownership share and possibly improve their eligibility for a loan.

• Have you been in business for at least two years?  If not, do you have previous experience in the same field of work?

  • Most business owners must be in business for at least 2 years to be eligible.  In some cases, 1-year is enough with strong enough compensating factors and proof of previous work in the same trade.

• Does the business have loans that are personally guaranteed by you?  Are you paying for these debts in the business but they show on your credit?

• One of the biggest mistakes when calculating a business owner’s debt-to-income ratio is counting the business debts against them twice. The interest on a business loan is likely being used as an income deduction. When the lender reviews the income and debt payments, they see a large business loan payment and try to use the reduced income to cover this debt. This is counting the loan against the business owner twice. With 12 months of cancelled business checks showing the business pays the debt, you can omit the business debt from the debt ratio.

• Are any of your business expenses large, one-time expenses that will not re-occur in the future?

  • Some expenses, such as startup expenses, are not re-occurring and can be removed from the expenses for the purpose of underwriting.  You will have to prove these will not re-occur

• Is a large portion of your business expenses depreciation – amortization for an asset that will not be replaced or loss-carryover expenses from a bad business venture?

• The IRS allows business owners to depreciate the value of a business asset over many years to offset income and also amortize start up costs as an expense.  However, this is not a true out-of-pocket cost for following the years, but will show on the business tax returns for many years after the cost has been spent. The same can be said for a loan/investment to a business venture that resulted in a loss which is expensed over several years after the loss. In those following years, these expenses can be added back as income since the business owner is no longer spending money on these expenses.

These questions should be asked by any loan officer when they encounter a business owner. It’s very important that your loan officer is familiar with these questions. Most underwriters do know how to calculate the income, but if the loan officer doesn’t prepare the underwriter with some validating documents, the underwriter will be left to make a credit decision without a complete picture of your business – which may result in a laundry list of conditions/additional requirements, or worse, a turned-down loan application.

Stay tuned for other tips on how to improve your credit eligibility as a business owner.

Many consumers are not aware of the loan servicing concept. It’s commonly believed that the company a consumer makes mortgage payments to is the mortgage lender.  This is not usually the case. The company that actually owns a loan is usually an agency that the consumer never speaks to. The loan servicer acts on behalf of the lender collecting payments and performing other services related to managing a home loan.

Here’s an analogy that may help explain loan servicing more clearly.  Imagine a person bought an apartment building and acted as the landlord and property management firm. This person then sells the apartment building to a friend, but the friend does not know how to manage a property, so the seller decides to collect a small fee to maintain the property management but is no longer the owner. In the world of mortgages, the owner is the lender and the property manager is the loan servicing company. The company you make your payments to is usually not (or is no longer) the owner of your loan.

Here is a summary of the announced objectives from the bureau’s website:

Examination Objectives

1. To assess the quality of the regulated entity’s compliance risk management systems, including internal controls and policies and procedures, for preventing violations of federal consumer financial law in its mortgage servicing business.
2. To identify acts or practices that materially increase the risk of violations of federal consumer financial law in connection with mortgage servicing.
3. To gather facts that help determine whether a regulated entity engages in acts or practices that are likely to violate federal consumer financial law in connection with mortgage servicing.
4. To determine, in consultation with Headquarters, whether a violation of a federal consumer financial law has occurred and whether further supervisory or enforcement actions are appropriate.

There are many places we need financial reform. I believe the government has made major strides in improving consumer protection for consumers who apply for home loans. In the past 4 years, the majority of complaints I’ve heard have been related to loan servicing. I applaud the CFPB for addressing this area which homeowners badly need assistance with.

Here are a few other loan servicing issues I hope will be addressed in the near future.

• Refinance or Modification? -  When clients call to ask for new loan terms, loan servicers sometimes send the consumer to the wrong department. Loan modifications and short sales are for homeowners in hardship, where refinancing is for homeowners who simply want to see if they qualify for cheaper, better loan terms. The customer service agents who answer these calls need to address a client’s needs, and send them to the appropriate department. I’ve heard many horror stories of consumers who have good credit and qualify for a refinance, only to be told they cannot receive help unless they begin to miss payments on their mortgage (which is often a requirement by a servicer to review the loan for a modification). This is absurd and should never happen.
• Where’s my grace period? – Some homeowners have told me that their loan servicing was transferred to a new company and immediately, the new servicing company begins to harass them for the payment before it’s finally due. By law, the homeowner is given a 15-day grace period to make a payment. Many homeowners use this grace period regularly and never miss a payment.
• Why is my loan servicing company not a lender? – It is not required that a loan servicer also be a mortgage lender. Under normal market conditions, this is not a big issue. However, it is a big deal now.  The government created a special refinance program called HARP, which has special provisions for the current servicer. Some homeowners will only qualify for the version of HARP that their servicer can offer.  What happens if the servicer isn’t a mortgage lender? That homeowner misses out. I’ve never understood why there needs to be a version of HARP that only the servicer can do, but if they’re going to give the servicer a special program, they should only allow companies to service these loans if they can also originate new loans. Better yet, the government should change the guidelines so that all lenders can offer this special program.

The implementation of HARP 2.0 has drastically improved the options for homeowners who have PMI.  However, since HARP 2.0 is so new, many homeowners are still having difficulties finding lenders willing to help them.  This is especially true if they have a specific type of PMI that isn’t widely supported.  Let me share the latest info I have on PMI HARP loans.

First, let’s address the big 3 banks:

• Wells Fargo- Wells Fargo has done a good job supporting their customers by offering  a wide variety of HARP options including PMI loans even before HARP 2.0 was released.  With HARP 2.0, they can now lend with no loan-to-value limit.  They are supporting most types of PMI but are not doing any LPMI HARP loans
• Chase- Chase is the only bank that offered all versions of HARP to their customers, and also supported PMI HARP loans long before HARP 2.0 was released. Chase will do most HARP loans but they are also not supporting LPMI loans
• Bank of America- Thank goodness Bank of America is finally joining Chase and Wells! They will now do PMI HARP loans, rental properties, and HARP loans with subordinated second mortgages. These features were all standard at Wells Fargo and Chase, but Bank of America had traditionally limited their HARP options. As I mentioned above, this is no longer the case. Bank of America has adopted a HARP product selection similar to Wells Fargo and Chase. Unfortunately, there are several types of PMI that Bank of America is not supporting – this includes LPMI.  Additionally, there are some types of monthly paid PMI that they do not support.

In summary, if your loan is with one of these three banks, most HARP options other than LPMI loans are supported. I’ve spoken to representatives at these banks and they do not anticipate supporting LPMI loans at this time. If you do not have LPMI, it’s worth checking with your lender about what options they can provide.  Also remember that it’s worth checking with outside lenders to see if they can offer a more competitive price.

Next, let’s address PMI HARP loan options outside of the big banks.

Many lenders are now supporting HARP 2.0 that include options for borrowers with PMI.  You will see a mixed array of lenders supporting PMI HARP loans and the mix often varies based on the state your property is in. The PMI company insuring your loan and the type of PMI you have will be critical in determining your eligibility.  Some lenders will only do HARP loans for certain PMI companies; others will work with all PMI companies.  Here is a list of the 6 biggest PMI companies who may be backing your loan. In order to determine your specific type of PMI, you will need to contact your PMI company.

• Genworth- 1-800-444-5664 http://mortgageinsurance.genworth.com
• MGIC-1-800-558-9900 http://mgic.com/origination/refi_to_mod.html
• Radian- – 1-877-radian1 http://www.radian.biz/page?name=HomeownerHelp
• United Guaranty- 1-877-642-4642 https://www.ugcorp.com/services/harp.html
• RMIC (Closed but supporting HARP PMI loans) 1-800-999-7642 http://www.rmic.com/productsandservices/recovery/Pages/default.aspx#harp
• PMI Mortgage Insurance Company- (Closed but supporting HARP) 800-366-1143 http://www.pmi-us.com/lenders/harp.html

As I mentioned above, the particular type of PMI you have will determine which lenders will want to work with you. Here is a list of the four options in the order of most-supported to least-supported:

1. If you pay your PMI monthly, you’ll have the highest chance of being supported by HARP
2. If you had LPMI where the PMI premium was paid all upfront, you’ll have a handful of lenders who will support you
3. If you had a “Split-Premium” where a portion was paid upfront and you still pay monthly, fewer lenders will support you
4. If you have LPMI where your servicer is paying the PMI company monthly, you’ll have the least amount of support

For options 2 and 4, in some cases Radian and MGIC are willing to convert your PMI to monthly paid to help you qualify. I’ve asked representatives at Genworth and United Guaranty if they are making similar accommodations and they told me “they are considering all options” to support the homeowners.

If you have LPMI and your lender paid the premium upfront (option 2), I would highly recommend seeking a lender who will do your HARP loan without converting your PMI to a monthly premium.  Your PMI was already paid upfront and no further premiums are needed. By converting to a monthly premium, you’re paying additional and unnecessary PMI.

If your PMI is paid monthly by your lender, it is nearly impossible to obtain a HARP loan unless you convert the PMI to a monthly premium. Again, only Radian and MGIC is offering this at the moment.  Furthermore, the big 3 banks are not supporting LPMI loans converted to monthly even though they will do standard monthly PMI HARP loans. If you find the frustrating, I am right there with you. I have had exhausting discussions representatives at the banks. It’s probably not worth wasting your time discussing it with them. Of course, if I hear of any changes or developments, I’ll be sure to update this post.

Some lenders are exclusively “Loan Servicers”. This means they cannot do HARP loans as they only collect your payments. If you contact them about HARP, they may refer you to an outside lender, but the lender they refer you to cannot do more than any other outside lender, so be sure to shop around to get the best rate and price if this is your situation. Here is a list of the biggest servicer-only lenders I receive calls about:

• Seterus
• Cenlar
• Greentree

It is a relief to be able to write posts discussing options and opportunities that can help consumers shop for their HARP loan instead of explaining reasons why they cannot refinance. Here are two more posts that will be helpful in the event that you are able to refinance with the HARP program.

HOW TO SHOP FOR A HOME LOAN

WHY IS MY HARP RATE SO HIGH

These posts should help you prepare for the process, find the best rate, and find the best professional to help you.

1. Look for potential lenders to work with-  Try to narrow the field down to 2-3 lenders that fit your criteria. If you’re looking for a specific type of loan, look for experts in those fields. Remember, just because a loan company offers a particular type of loan doesn’t mean that the loan officer you’re working with is an expert. Lending is like law or medicine in this respect, if you can benefit from a specific type of expertise, seek out those experts. You wouldn’t see an eye doctor if you had a heart condition. Examples of specialties to look for are: First-time buyer programs, VA loans, USDA loans, Investment properties, self-employment income, jumbo financing, land loans, rehabilitation loans, and construction loans. Remember to look for recommendations or reviews from friends, family, or reputable websites.
2. Ask the experts for their input and advice-  You’ve found some trusted advisors, now it’s important that you use their expertise. As a consumer, you might know very little about home loans, or you might know a lot. In either case, if you’re working with the right expert he or she will approach your ideas or decisions like a consultant or teacher and will educate you on the programs. Take advantage of this expertise and ask questions. When dealing with financing a home, minor adjustments to the program type or loan structure may save you thousands of dollars and could help you qualify for a better, more affordable home loan.
3. Compare pricing on the rates and fees- It sounds simple, but “pricing” lenders is rarely done correctly. Once you’ve decided which lenders you’re considering and the appropriate loan type/structure, you’re ready to compare pricing. Find a day when you can discuss pricing with all of your potential lenders. Preferably, this time would fall within the same couple of hours, as rates change daily and sometimes multiple times throughout the day. Here’s how this works. Ask your first lender for a quote with the parameters you’ve determined to be appropriate. I recommend talking to the lender who gave the best advice on loan type/structure first since it won’t be difficult to explain how you want your quote to come. Then, immediately talk to the other potential lenders and ask for the same quote with the same RATE as the first lender, then compare the fees. The reason you want to ask for the same rate is because every lender has a different fee structure. Establishing a constant rate isolates your pricing comparison to the lender’s fees. You now have an apples-to-apples comparison. One more thing. Make sure your fees are ONLY the “Adjusted Origination Fees”. This is where your lender’s profit comes from. Other fees are needed to obtain your loan, but are not charged by the lender so should not be included in the comparison. It is not uncommon for lenders to send quotes with “optimistic” low third-party fees or pre-paids to make their loan look cheaper. The “Adjusted Origination Charge” is the sum of all fees the lender is making for issuing your loan. At the end of the day, the lender with the lowest fees with the same rate is offering the best price.
4. Weigh the intangibles- Even if a lender can offer you the best pricing for the optimal loan type, you can and should still consider the intangibles. Competency is of the utmost importance in today’s lending world. Your quoted rate and fees mean nothing if your loan is turned down for any of a number of reasons, or if you do not close on time. Breach of contract due to the lender being unable to close on time should never happen, but it can and does happen regularly. If you’ve signed a contract and cannot fulfill your terms, you may lose the home, your earnest deposit, the cost of a home inspection, and the cost of an appraisal. Worse yet, if you’ve notified your landlord that you’ll be moving and he or she has found a replacement tenant, you may also be homeless. Your lender must imbue the highest confidence, and should treat your prospective home purchase as seriously as you do. If you are refinancing, the potential harm is lessened, but can still be very costly. Consider the borrower who got to the closing process (with another lender) only to discover that his lender forgot to include his rate buy-down costs in the refinance. This borrower was faced with paying thousands of dollars out of pocket or canceling the refinance altogether and to restart the process with now higher rates. Whether purchasing or refinancing, work with a lender you can trust.
5. Don’t be afraid to bargain- A good lender will not be angry if you want them to match another lender’s quote. If you’ve done steps 1 through 4 and the lender you prefer isn’t the cheapest but has the best intangibles, send the quote to them and ask them to match it. Be honest about how you compared the pricing, and let them know that you prefer working with them. When I receive requests like this, I’m honored that the client has chosen me for competency and expertise. I do my very best to match or beat the offer every time.

If you’ve followed the steps above, you’ll have a highly competent professional helping you get the best loan type/structure to fit your needs at a great price. Home loans have become increasingly complex over the years.  These 5 steps should help you find a great lender and a great price on the best home loan for you.

ADDITIONAL TIP:

The market conditions that impact mortgage rates for one lender usually impact pricing for others as well. For instance, all Federal-Bond FHA loans are impacted by the GNMA Mortgage Backed Security Bonds. If rates decrease for one lender, they will often decrease for others. The same goes for rates on the uptrend.

When the value of these bonds increase, rates go down. When the value of these bonds decrease, rates go up.  The only website I know of that provides this information at no cost is here: http://www.mortgagenewsdaily.com/mbs/

Ask your lender which bond you should be tracking for your loan scenario.

There’s no question that the interest rate of your mortgage is one of the most important factors to examine.  However, the price of mortgage insurance can be just as impactful.

Mortgage insurance has been tax deductible for certain homeowners for several years, but this deduction is now gone (as of 2011).  In addition, mortgage insurance premiums for FHA loans have increased over the years and is scheduled to increase again on April 1st, 2012.  The annual mortgage insurance for FHA loans is more than double the premium charged in 2009 and earlier.

Home buyers should closely evaluate their options before choosing a loan.  Too often a borrower will take a low interest rate FHA loan when a conventional loan may save them more.

United Guaranty gives a great example of how much a homeowner can save on a conventional loan.  Here’s an excerpt from their website:

                  Reference: https://www.ugcorp.com/mi_tools/rates.html

This chart does a good job of showing the different conventional PMI options vs. FHA.  In addition, the FHA premiums on this chart are the current rates which will be higher after April 1st, 2012. This chart also shows how financially beneficial it is to pay your PMI upfront on a conventional loan.  Many consumers do not know that they can pay their PMI upfront as a one-time payment.  This one-time upfront cost is usually equivalent to 2-3 years of monthly PMI.  If you plan on keeping your home for more than 3 years, prepaying the PMI is often wise decision.  One last benefit of paying upfront is that you will not have to pay for a home appraisal when you are eligible to cancel monthly PMI.

Whenever I have a client putting less than 20% down, the discussion of mortgage insurance is one of the most important topics I address.

Here are some general tips to reduce your mortgage insurance costs:

• Pay the premium upfront as a “Single-Premium.” (Conventional loans only)
• Choose a non-refundable premium (refundable premiums allow a homeowner to receive a refund of the cost if its paid off early, which usually is not worth the extra cost).
• When pricing, look at your down payment options in 5% increments.  15% down loans have lower costs than 10% down loans, and 10% down loans have lower costs than 5% down loans.
• Consider a 15-year loan!  I find that a lot of my colleagues miss this option.  The risk to the lender is drastically less on a 15-year loan, so the mortgage insurance companies will charge less.  Yes, the payments will be higher but after you consider the lower rate and lower mortgage insurance cost, it may not be as high as you think.

The tax credit can range from 10-50% of the homeowner’s interest.  If the calculated MCC percentage is over 20% of the annual interest payment, there is a $2,000 cap in the credit.  At 20% or less, there’s no limit to the amount of the credit.

The purpose of the program is to reduce the cost of homeownership for first-time buyers.  However, other home-buyers are or may be eligible as well (see facts below).  Here is a description from the Washington State Housing Finance Commission on the MCC program:

MCCs are not mortgages…  they are tax credits that put extra cash in your pocket each month, so that you can more easily afford a house payment, which means fewer tax dollars will be withheld from your regular paycheck, increasing your take-home pay.

I think one of the reasons that many first-time buyers do not request this program is because of its complexity.  Funds are managed on a local level by cities, counties, or by the state.  A homebuyer must consult with a local lender who specializes in this program or contact their local housing authority/finance agency to find out if the program is available in their area.

To help illustrate how much money this program can save a homeowner, here is a brief overview of how it would work.

Let’s suppose a first-time buyer obtains a $200,000 mortgage at 4.25% on a 30-year fixed mortgage with a Mortgage Credit Certificate worth 20% of their home interest (the amount we use in Washington State).  Over 30 years, this loan would generate $154,196.69 in interest.  If the homeowner kept the home and the loan for the full 30 years, they would have received $30,839.34 in tax credits over the 30 years!  That’s is an average of $1,539.04 dollars per year for the first 10 years (the credit is more at the beginning of the loan), and an average of over $1,000 a year in tax credits for the term of the loan

As you can see from the example above, this program can save the homebuyer a lot of money.  If you think you may be eligible, I would highly recommend finding a local expert in your area.  To determine the benefit for your tax scenario, be sure to talk to a tax professional on how this program would benefit you.

Here are some MCC facts that you may find helpful:

• You may have restrictions on the type of property you buy
• There will be an income limit for your area
• There will likely be a home-price limit in your area
• First-time buyers are defined as a person who hasn’t owned and lived in a home for 3 years
• Honorably discharged veterans may be eligible, even if they’re not a first-time buyer
• There may be restrictions on using the home for a home business
• Your lender will likely need to be approved with your local housing authority to issue these certificates (no, you cannot get them after you close on your loan)

The information contained within this website is provided for informational purposes only and is not intended to substitute for obtaining accounting, tax, or financial advice from a professional accountant.

Presentation of the information via the Internet is not intended to create, and receipt does not constitute, an accountant-client relationship. Internet subscribers, users and online readers are advised not to act upon this information without seeking the service of a professional accountant.

Any U.S. federal tax advice contained in this website is not intended to be used for the purpose of avoiding penalties under U.S. federal tax law.

There are a few reasons a homeowner may be offered a high rate.  Here are the three biggest:

• Risk-Based Price Adjustments

  These are price adjustments that account for “Risk” factor with the loan.  This can include credit, loan-to-value, property type, and the homeowner’s occupancy (whether the home is the their residence, a second home or a rental property).  Most who apply for HARP loans have some type of price adjustment, so be sure to ask your lender which adjustments are impacting your pricing.

• HARP loans are pooled as different securities when sold to Wall Street

  When loans are sold to Fannie Mae or Freddie Mac, the two agencies who are participating in HARP, they are attached to a specific mortgage-backed-security or mortgage bond.  These securities are then sold on Wall Street.  The expected performance of these loans, which includes default rate, have an impact on what rates the lender can offer.  Fannie Mae and Freddie Mac sell these securities differently than standard loans, because standard loans are often expected to perform better, resulting in slightly higher rates since these loans have a higher risk associated with them.

• The homeowner has limited HARP refinance options

  I see this issue from time to time, and it is very frustrating to see that a particular bank is clearly charging too much for the loan.  Even considering the two above factors, sometimes the lender charges a higher rate than is necessary.  This happens for two main reasons:
  (1) There is a version of HARP that only the current lender can offer. This can either be called Refi Plus    (Fannie Mae) or Same-Servicer (Freddie Mac).  These versions of HARP are easier for the current lender to process and underwrite than the versions outside lenders can offer.
  (2)Many homeowners believe they can only apply for HARP with their current lender or feel they must  use their current lender due to relaxed guidelines only offered by their current lender.  This exclusivity  gives the current lender an advantage, and thus higher pricing of loans.

It’s very frustrating to know that many people who have good credit do not receive the loans they deserve or would otherwise qualify for.  My sister is in this position.  I won’t share the lender, but I will share the basics of her refinance.

My sister has good credit and like many others, is a little underwater on her mortgage.  She has a rate in the low 5% range and sees rates being offered around 3.875%-4%.  When I look at the pricing for a Freddie Mac HARP loan, it would seem that she should get a 4% rate.  We confirmed this by pricing the loan with other lenders, everyone offering her 4% or lower. The problem is that her property requires an appraisal waiver and the only company who will offer that waiver is her current lender.  The initial rate they offered was 4.5% and the fees to get her rate at 4% were 3 times the cost of any other lender.  Yes – that lender would make three times more money on the loan.

In the end, this practice results in many homeowners looking to use outside lenders to do their HARP loans.  In many cases outside lenders will be able to do these loans, the above being one of the unfortunate exceptions.  Consumers shopping around for the best possible pricing can benefit me and my business (not wanting to seem self-serving is one of the reasons I haven’t brought it up before now), along with all of the other lenders out there who are fair and upfront in the way they do business. The main reason I’m sharing this information is that I wonder – Does the government know that this is what mortgage companies are doing with their unique exclusivity over these programs, or did they intend for the program to be used this way?  I’m not sure I know the answer to that question, but I do know there are people who cannot benefit from HARP only because the rate they are being offered is too high – and my sister is one of them.