Lilly Nelson writes: You have been in your house for a few years. You still have to pay your homeowners insurance. The budget belt is getting tighter due to an alarming 6.6% interest rate on your mortgage. Sure you get a great incentive every year when you file taxes but will you be able to afford it in the future? Do you need to fix that window that is allowing the cold winter air to spew in? Is it time to refinance?
“It’s a seller’s market.” That’s what everyone keeps screaming. However, just because house prices and mortgage rates are at all time lows, this does not spell good things for the housing market. Why? The dollar. With inflation at it’s current rate (23.5 percent higher than a year ago1) people are doing their best to hold on to every last cent. This has prompted a lot of people to take advantage of refinancing to take advantage of the lowest interest rates in years. Not everyone is fortunate enough to be able to refinance. Suddenly they have spent a lot of time, and often times money, when there was no way the house was going to appraise at the proper value.
In most of these cases this was due to pre-HVCC (Home Valuation Code of Conduct) guidelines.2 Before the HVCC your lender could call a local agent they trusted and have them value your home in comparison with the surrounding property values and values of other houses they were aware of, usually giving the qualifying home owner a higher value. This, of course, eventually led to “underwater” mortgages, a mortgage with a higher balance than the free-market value of the home.3 The HVCC guidelines took the lender and home owner out of the equation to prevent appraisers from being influenced into giving the qualifying home a higher value. While great, in theory, it meant that a large number of homes were being under valued due to a lack of knowledge by the appraiser. Due to several problems with the regulations it was altered in 2010 for the only lenders who were required to comply Freddie Mac and Fannie Mae.4
Still the government instituted regulations are causing problems to the housing market, even for new homes. Contractors are losing work due to appraisers“fatally skewing the loan-to-value (LTV) ratios required for the buyers’ mortgages.” Appraisals are being based on values of both brand new and foreclosed homes that have been sitting vacant for years. This drops the price of brand new homes and is killing the housing market.5
Is refinancing still necessary? Obviously, when refinancing, the homeowner should be prepared. This means homework. With all the government regulations on appraisers and lenders it will be an uphill battle. There are a plethora of websites that will offer all the information a homeowner will ever need to refinance their home. From When to Refinance Your Mortgage6 to Ways To Raise The Value Of Your Home7 all the information is online. Please do the homework and be prepared for the appraiser. This will make sure the property is valued properly. If it doesn’t work, regroup, prepare , and try again. Some banks will pay for the second appraisal, though it is very rare. Don’t be afraid to ask questions, the lenders want and need the money.
While not a big fan of government regulation, there are plans put in place to assist the responsible homeowner in need of refinancing for their “underwater” mortgage. HARP (Home Affordable Refinancing Program) allows borrowers to refinance a loan up to a certain percentage over the value of the house. This program is not offered to anyone who is on the road to foreclosure, so any past due payments means ineligibility. HAMP (Home Affordable Modification Program) is available to those who have borrowed through the federal lenders Fannie Mae or Freddie Mac. This program is only available to individuals on the verge of default who are experiencing hardship.8
There is very little hope for 2012 for a better housing market. Unless the proper steps are taken we will remain in a saturated housing market of foreclosure and unsold homes. The savvy homeowner can still take steps to keep in the black during this time.
Lilly Nelson is a Jill-of-All-Trades Thanks for reading.
1) “US Inflation Slows as Consumer Prices Dip 0.1% in October 2011 – US Inflation Calculator.”Inflation Calculator | Find US Dollar’s Value from 1913-2011. Inflation Calculator, 16 Nov. 2011. Web. 12 Dec. 2011.
2)”Refinance Home | Refinance My Home | Home Refinancing – TotalMortgage.com.”Current Mortgage Rates, FHA Mortgage Rates | Mortgage Rates. TOTAL MORTGAGE SERVICES, LLC.,Web. 12 Dec. 2011.
3)”Underwater Mortgage Definition | Investopedia.”Investopedia. Investopedia ULC, Jan. 2011. Web. 12 Dec. 2011.
4)Kraus, Michael. “HVCC Replaced, Fannie Mae Releases New Appraisal Guidelines.” Web log post.Total Mortgage Services. TOTAL MORTGAGE SERVICES, LLC., 9 Oct. 2010. Web. 12 Dec. 2011.
5)Swanson, Jann. “Builders Say Appraisals “Killing Sales”Mortgage News Daily – Mortgage And Real Estate News. Brown House Media, Inc., 9 Dec. 2011. Web. 12 Dec. 2011.
6)Taylor, Don. “When to Refinance Your Mortgage.”Mortgage Rates Credit Cards Refinance Home CD Rates by Bankrate.com. Bankrate, Inc.,Web. 12 Dec. 2011.
7)Schiffman, Betsy. “Ten Ways To Raise The Value Of Your Home – Forbes.com.”Information for the World’s Business Leaders – Forbes.com. Forbes.com Inc., Web. 12 Dec. 2011.
8)Duffy, Marcia P. “2 Refinancing Options If You’re Underwater – MSN Real Estate.”Home Buying, Selling and Renting Advice – MSN Real Estate – MSN Real Estate. 2011 Microsoft, 14 Nov. 2011. Web. 12 Dec. 2011.