Don’t Let Falling Home Prices Keep You From Refinancing

Here’s the scenario facing millions of Americans and home owners right here in our community: Your house is worth less than you paid for it, and while you continue to pay your monthly mortgage, you’d love to take advantage of new lower mortgage rates. You figure you’re out of luck because who’s going to give you a loan on your property that’s declining in value.

What did your mother tell you? “Never assume anything.” Well, she was right.

Under the Obama administration’s foreclosure avoidance program, you can refinance to a lower rate if your mortgage is owned by Fannie Mae or Freddie Mac. That’s right. In other words, if you purchased your home for $500,000, and it’s now worth, say, $400,000, you can still refinance under one condition: You have to be current on your Fannie Mae or Freddie Mac- owned mortgage. The government is rewarding you for your good financial behavior. The government will give you a new loan even if the new loan exceeds Fannie’s traditional 80% Loan-to-Value (LTV) ratio. In fact, it’s waived its rule for LTVs as high as 105%. In fact, it doesn’t even require that your property be reappraised.

Moreover, in a note to private mortgage insurers, James B. Lockhart III, director of the Federal Housing Finance Agency, confirmed that this immediate, money-saving refi program would not require that refinancers purchase new mortgage insurance should they exceed the 80% LTV limit. If, however, you’re already paying private mortgage insurance, you will likely continue to have to pay (PMI). But if you put down 20% or higher on your original purchase, but have since seen your property decline in value, raising your LTV higher than the 80% LTV threshold, you would not be required to purchase new mortgage insurance to obtain a refinanced loan.

Why all the government largess, when you’ve continued to meet your monthly mortgage obligation. Why, after all, would the government let you refinance to a lower rate when you’re already paying them at a higher rate? Good question.

The answer is that by lowering your monthly payment and credit risk, you’ll be less likely to go into default or foreclosure, and that will ultimately save the government money.

The end date for this program is June 10, 2010. So pick up the phone and ask your loan servicer, “Who owns my loan?” If you get the good news that it’s Fannie or Freddie, and you are current on your mortgage payments, start getting your financial records in order to start the refi process.

By Colleen Bennett

Realtor, Dilbeck Premier Properties

(909) 758-4912