Homeowners with underwater mortgages can now refinance their homes under the Obama administration’s Making Home Affordable (MHA) program.
The MHA refinance program allows homeowners to reduce their monthly payments if they owe a certain percentage of the property value on their mortgage. The old limit required a homeowner to owe no more than 105 percent of the property value. The new change unveiled on July 1 raises the limit to 125 percent.
New limit opens up program
The old MHA refinancing limits closed the door to homeowners in many markets that were hardest hit by the housing crisis. The meltdown in home values caused declines from 20 to 40 percent and even more in some areas.
By raising the limit, the government is providing opportunities to large numbers of homeowners that did not quality under the program’s old limits. In addition to those who are having trouble making monthly payments, the program can also help those who can manage their payments but simply prefer to reduce their rates. Treasury Secretary Tim Geithner called the MHA program “a crucial step” in efforts to restore the housing market.
Eligibility
In order to qualify for an MHA loan, the homeowner must:
• Occupy the property. The MHA mortgage refinancing is not available to speculators and investors.
• The first mortgage must not exceed 125 percent of the current market value of the home. For example, for a home worth $400,000, the homeowner must not owe more than $500,000 (multiply current value by 1.25).
• Equity in the property must be less than 20 percent.
• The homeowner must be current on their mortgage payments and have enough income to afford the new monthly payment after MHA refinancing.
MHA rates for Fannie Mae and Freddie Mac mortgages
The MHA program is limited to borrowers with home loans that are owned or guaranteed by Fannie Mae or Freddie Mac. However, FHA and VA borrowers are eligible for what is known as an MHA streamline refinance.
Homeowners must be current on their monthly mortgage payments for the past 12 months and the home may not exceed four units. Homeowners might also be able to roll their second mortgage into an MHA refinancing, so long as the combined principal of both mortgages does not exceed 125 percent of their current market value.
Documentation requirements
An applicant for the MHA program must provide these documents to qualify for the loan:
• A listing of credit card and all other debts including the remaining balance due.
• Recent income tax returns.
• If applicable, second mortgage information.
• Documents showing monthly income before tax.
The MHA mortgage refinacing website provides a self-assessment tool that will help homeowners check on their eligibility for this new program. The URL for the site is MakingHomeAffordable.gov. If you appear to qualify, the site also provides guidance on how to proceed in obtaining an MHA refinancing loan.
A number of online resources also exist that allow homeowners to discover how much their property values have declined. Simply use one of the major search engines like Google, Yahoo or Bing to find one of these tools. One example is Yahoo’s real estate estimator at http://realestate.yahoo.com/Homevalues. Another resource is Standard and Poors’/Case Shilling Home Price Indices, a survey of real estate prices in 20 metropolitan markets.
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