refinance

Want to refinance? Know the details

Misconception: Fannie and Freddie now allow refinances for up to 125 percent of loan to value.

The reality: Not yet. Both companies allow refinances right now of mortgages of up to 105 percent of the home's value. Here's where it gets complicated: Fannie and Freddie have different start dates for when they'll begin buying mortgages with loan-to-value ratios between 105 percent and 125 percent.

Fannie Mae says it will start buying those higher-LTV loans beginning Sept. 1. Freddie Mac says it will start buying them Oct. 1. Lenders could process and close those loans now if they wanted to, but they don't want to. They'll wait until Fannie and Freddie are buying those loans.

Lenders versus insurers

Misconception: Under the Home Affordable Refinance program, lenders are refinancing loans with mortgage insurance.

The reality: If major lenders are doing refis of loans with mortgage insurance, they're being discreet about it. Bank of America, Chase and CitiMortgage did not respond to inquiries, but if e-mails from Bankrate readers are to be believed, none of those big lenders is refinancing loans with mortgage insurance.

A Wells Fargo spokesman replied: "We are not offering HARP refinances to borrowers who have mortgage insurance on their existing loans at this time. Unfortunately, I'm not able to provide any insight as to when we may be able to do so."

Bank of America has implied that it will refi insured loans "as systems become operational." Other lenders have been tight-lipped about whether they will refinance loans with mortgage insurance at all.

When the Obama administration promised to let people refinance their home loans but keep the same mortgage insurance policy, it was telling the insurance industry to do something that it's not set up to do. It's akin to selling your old car and buying a new one, and expecting the auto insurer to transfer the policy without changing one word of it.

The mortgage insurance companies say they have the procedures in place. The lenders are saying almost nothing. Neither side is pointing fingers at the other. Without a blamefest, it's hard to discern what's going on.

A spokeswoman for mortgage insurer MGIC says some lenders are refinancing loans with mortgage insurance under HARP, but she couldn't say which ones.

Misconception: All mortgage insurance is the same. Once lenders start refinancing insured loans, those homeowners are good to go.

The reality: Most mortgage insurance covers individual loans. These are called "flow" policies. But sometimes investors buy "pool" or "portfolio" policies that cover a batch of loans. A few readers have e-mailed Bankrate complaining that their lenders have told them that they can't refinance under the Home Affordable program because their loan is covered by pool insurance.

This one rests with Fannie and Freddie, who say they are working on the pool insurance issue.

Misconception: All of the above is straightforward enough. Someone with a Fannie-owned loan and mortgage insurance will be able to refi the loan with another lender at, say, 120 percent loan-to-value, as of Sept. 1.

The reality: Nope, the borrower in the above situation will have to stay with the current servicer. Fannie allows you to refinance with another lender, as long as the loan-to-value ratio is 105 percent or less. But when Fannie allows refis above 105 percent LTV beginning in September, it will require borrowers to refinance with their existing servicer.

Freddie, on the other hand, says it will allow borrowers to switch lenders regardless of the loan-to-value ratio, whether the loan has mortgage insurance or not.

The mortgage industry torpedoed the economy by persuading consumers to get loans that they didn't understand. Now the industry is coming up with rescue plans that consumers don't understand.

Read more about refinance.

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