Interest rates on millions of adjustable rate mortgage (ARM) loans are keyed to reset over the next year, meaning higher monthly payments for many American homeowners. The most common way of avoiding those higher rates has been to refinance into other loans programs. The odds of being able to refinance in today’s slumped housing market, however, seem to be slim to none from all the media hype.
A recent study from Washington-based research firm Campbell Communications found that of the 1,744 mortgage brokers polled, 57 percent were unable to help their customers in August refinance out of their ARM loans. That percentage included both prime and subprime (poor credit) borrowers. Apparently those with good credit had a hard time refinancing because of high loan-to-value ratios and low appraisals, while those with bad credit found that subprime loan programs had evaporated as investors rapidly left the mortgage market. In fact a separate study from Geosegment Systems, based in Nashua, New Hampshire, reported that14 percent of the brokers in the survey had a complete lack of wholesale lenders offering subprime loans.
That survey also found that 64 percent of weak credit borrowers were unable to refinance out of their risky adjusting loans last month, with 50 percent of prime, or good credit borrowers facing the same problem.
Help from the FHA
Sounds pretty rough out there, doesn’t it? If you are in urgent need of refinance funding, you might not be able to find it with private lenders, but you may find more ample mortgage credit by applying for a government-sponsored Federal Housing Administration (FHA) loan. As the going has gotten tough out there, President Bush and many congress members have stepped into the federal mortgage arena and pleaded for looser refinance requirements on FHA home loans. Under the new FHASecure Act, about 240,000 of the 2 million borrowers with ARM loans resetting during the next 12 months are eligible to refinance with the FHA.
Terms and Requirements
The FHASecure Act is revolutionary in that it allows even borrowers with delinquent mortgage payments to refinance. If you have at least four months of late payments (but no more than 12), you could also qualify for a one-time interest-free loan from the FHA to pay off your delinquency with your current mortgage lender. In order to be eligible, you must have at least a six-month history of timely payments before your interest rate is scheduled to reset, which can be anywhere between June 2005 and December 2009. Other requirements include a consistent employment history, sufficient income, and at least 3 percent home equity or the same amount in cash.
While these loans demand more paperwork and some extra fees, they are expected to save borrowers at least $100 per month for every $100,000 of their loans, compared with their dangerously expensive ARM loans.
Contact your lender or the local HUD office to see if you can save yourself hundreds by qualifying for a FHA refinance mortgage.