Tuesday, April 28
Written 11:45 a.m. EDT
THE RULES: Mortgage companies often give borrowers incorrect information about refinancing under the Obama plan. They do it out of ignorance, not out of malice. Here are a couple of items of frequent misinformation:
Mortgage servicers tell borrowers that, under the Making Home Affordable plan, the borrower can refinance for more than the amount due and use that money to pay off a home equity loan or line of credit. Nope, no can do. You can only refi for the amount owed, plus a small cushion to take care of closing costs.
One reader got a piggyback loan when he bought the house so he could avoid paying for mortgage insurance. His lender told him that this wasn't a problem and that he could pay off the home equity debt with a cash-out refinance under the Making Home Affordable plan. But the home-equity repayment option is forbidden under the Obama administration's plan. The second lienholder has to agree to remain in the second lien position -- and some lenders are balking at that.
Another partial myth has to do with Fannie Mae's rule that supposedly allows you to choose your lender. Fannie says that you don't have to refinance with your current servicer if your mortgage is owned by Fannie. That's the headline. But the small print says different.
There are two ways for a lender to underwrite a Fannie-backed loan: by hand, or through a computer program called Desktop Underwriter, or DU. If your situation is straightforward and simple, a lender might be able to process your Obama plan refi through Desktop Underwriter. In that case, any Fannie-affiliated lender can do the refi, and you can choose the lender.
But whose mortgage is straightforward and simple these days -- especially if they're trying to refinance a loan on a house that has lost value? If the refinance has any complications, it will be done manually -- and only your current servicer can refinance your loan manually under the Obama plan.
And if you have mortgage insurance, you're stuck with refinancing with the current servicer, too. That requirement comes from the mortgage insurers, not from Fannie and Freddie.
HOME PRICES: The S&P Case-Shiller home price index for February shows that house prices continue to fall. But they're not plummeting at record rates. How's that for good news? Things are worse, but at least they're not getting worse at a record pace.
In the Case-Shiller index of 20 major metro areas, home prices fell about 18.6 percent in the 12 months ending in February. Over that yearlong period, prices fell more than 30 percent in Phoenix, Las Vegas and San Francisco. The metro that fared best was Dallas, where prices fell 4.5 percent.