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MORTGAGE REFINANCE

Refinance Applicants Benefit from On-Time Mortgage Payments

Written By:
November 20, 2011 at 7:50 PM

“The early bird (or ‘on-time’ bird) gets the worm” certainly applies to being approved for the new Home Affordable Refinance Program (HARP).

While the updated version of HARP (called HARP 2.0) will most likely cast a larger net for underwater borrowers, the program will not accept applications from those who have been not been current for the past six consecutive months or late one mortgage loan payment in the previous year.

While this information may be distressing to numerous borrowers, there is a silver lining. Experts say that although you must be current on your payments, the Obama administration has extended HARP until the end of 2013. That means that if you are not current today, you still have time to catch up and make at least six consecutive on-time mortgage payments.

For example, a homeowner who is underwater in his Fannie or Freddie mortgage and was late with one mortgage payment this fall can start paying on time today and may possibly be ready to apply for HARP by late spring.

Additional HARP 2.0 features include:

  • Fannie Mae or Freddie Mac must have purchased the loan after May 31, 2009 with an LTV greater than 80%;
  • Most importantly for underwater borrowers, the LTV cap is no longer in place and a new appraisal may not be necessary.

The new program is estimated to have an impact on possibly 1.5 million homeowners who could not refinance previously, but potentially can with HARP 2.0.

Are Many Borrowers Delinquent?

While the notion of being to catch up in time to apply for the program may be good news to some, delinquencies are still at an all time high. According to credit reporting agency TransUnion, 5.88% of the nation’s homeowners have missed two or more payments, which is up from 5.82% reported during second quarter.

Tim Martin, group vice president of U.S. Housing in TransUnion's financial services business unit says the increase is noteworthy. “It's much different than we've been talking about the last few quarters."

However Martin says that he can’t determine one specific cause for the increase. Typically housing prices and unemployment changes impact delinquency, but neither has really weakened.

Instead, he hypothesizes that the U.S. credit rating reduction and the U.S. and European debt crisis along with a submerged U.S. stock market as being one culprit.

He says that the combined elements, "could make folks question paying their mortgage," especially for borrowers whose home is worth less than what they owe.

Another school of thought is that the new adjustable rate mortgages, underwritten toward the end of the housing bubble are resetting at a higher rate. Realtytrac spokesman, Darren Blomquist says, "We still have the bad loans mixed in that are resetting."

TransUnion predicts that delinquencies will continue to fall in 2012 but now forecasts a few quarters at a higher rate due to economic conditions.

Martin says, “More and more homeowners are likely to struggle. I'm not sure this is a one-quarter blip."

In fact Blomquist believes it isn’t just loans gone sour, but more like the economy leaving many out in the cold. "This isn't just about bad loans anymore. It's about a bad economy that's pushing people into foreclosure."

What Happens if Your Lender Tells You To Stop Paying Your Mortgage?

In addition to economic reasons, many homeowners have been placed in compromising positions based on ill-informed advice from some lenders.

People like Carole Atkinson from Ventura, CA were given mixed messages from her lender about what to do with her overwhelming mortgage payment. She said that after trying for two years, she was able to modify her mortgage after an employee at her mortgage company told her to withhold three payments.

She recalls the employee telling her that unofficially, the lender wasn’t looking at people who were paying their loans. “I had never missed a payment, ever,” Atkinson says. “Can you imagine?"

She took a leap of faith based on the employee’s advice, skipped three payments and was socked with a $20,000 fee.

Bankruptcy lawyer Louis Esbin says that he’s heard the story of lenders telling borrowers to get behind on payments time and time again.

He says that the best way borrowers can avoid the mess is to open an account at another bank (other than where they have parked their mortgage) and deposit the mortgage payment in that account to demonstrate good faith.

Doing so will provide the borrower with proof that they took precautions after being advised to withhold payments, especially in the event of litigation.

"Because what the banks have asked them to do basically is breach their contract," he said. "It's tantamount to fraud to tell someone, 'If you breach your contract we'll consider you for a loan modification.' It's absurd."

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