Rates are down again near all time lows, and the opportunity to refinance your mortgage and save money by lowering your rate has been one of the few bright spots in a gloomy economy. That is, it’s been a bright spot for those who were able to refinance, but for the most part, those refinancing have fit into one of two categories, well qualified borrowers who had plenty of equity in their homes, or home owners with FHA loans who could take advantage of the FHA Streamlined Refinance program. There have been too many otherwise well qualified home owners who weren’t able to refinance because their home values had declined. The economy can’t recover until the housing sector is on the upswing, and the Obama administration has made it a priority to help more people refinance and lower their payments in spite of these circumstances. Home Affordable Mortgage, also known as DU Refi Plus or just the Obama Mortgage Plan, is a program to allow these homeowners to refinance to a better rate, even if their home has lost value to the point where the mortgage is slightly higher than what the home is currently worth.

DU Refinance Plus is a Fannie Mae program to refinance loans which are currently in its portfolio. Your mortgage is likely serviced by another company, but most loans are owned by one of the big Government Service Enterprises, Fannie Mae or Freddie Mac. Here is the Fannie search page to see if your loan is eligible for the program. DU stands for Desktop Underwriter, and it is Fannie’s automatic software which mortgage bankers (like me) and mortgage brokers use to approve loans every day. The process works like any other loan, but if the loan is eligible for the DU Refi Plus program it will be listed in the findings along with the specific conditions for documentation and appraisal that need to be met. I ran a few of these yesterday the process is simple. One of the big benefits was to buyers who bought with a 20% down payment, but because of the decrease in home values, they would have had to pay mortgage insurance if they refinanced. With this program they go back to the conditions when they first purchased their home, and if they didn’t need mortgage insurance then, they won’t need it now.

The Obama administration expects that the DU Refi Plus program and related programs could help as many as 9 million home owners refinance, and with the savings from the refinances often reaching hundreds of dollars per month, this could have a big impact on the economy (not to mention the effect it has on your own cash flow). This is possible, but there are a lot of moving parts to the Obama refinance program, and all the parties involved will have to follow the program as it is intended for it to get the most benefit. DU Refi Plus has made the guidelines, but each wholesale lender can choose how they interpret these guidelines and they can change what they are willing to accept in order to meet their own standards. If the loan had mortgage insurance when it was first taken on, it will need mortgage insurance again, and the MI companies will need to cooperate (most have signed on, but we’ll have to wait and see if they add their own criteria). Also, if you have a second mortgage or home equity loan, the second mortgage holder will need to subordinate the mortgage , and unless they have a change of heart (make that government incentives to do so) that is not going to happen. Most second mortgage lenders are pulling back and only subordinating loans which have a strong equity position. In other words, they will only subordinate for those who need it the least.

There are some issues to get through before this program reaches its full potential, but it will help a lot of people just as it is. Here are some of the features of the new Obama mortgage plan, DU Refi Plus:

• It is available through all Fannie Mae approved lenders.
• The old mortgage needs to have been paid on time and can’t have any 30 day late payments in the last 12 months.
• Mortgage insurance is based on how the loan was set up originally. If you bought with at least a 20% down payment and didn’t have mortgage insurance, you won’t need it now. If you had mortgage insurance originally, but you had the MI canceled or terminated afterwards, you won’t need it now. Otherwise the new loan will be set with the same level of MI coverage as it was originally, and lenders are encouraged to get the lowest cost option for the buyer.
• The borrowers on the new loan must be the same as those on the old loan (new borrowers can be added as long as all the old borrowers remain on the loan).
• Maximum loan to value ratio is 105% (that is, the loan can be up to 5% higher than the current value of the home).
• There is no limit on the combined loan to value when you factor in second mortgages and home equity loans, but the second mortgage holder will need to agree to subordinate their loan to the new first mortgage.
• The property can be your primary residence, a second home or an investment property and include all property types (single family homes, condos, multi unit properties).
• The new loan will be your choice of a fixed rate or an ARM that is fixed for at least 5 years.
• These are rate/term refinances only, that is you can add your closing costs into the new loan amount, but you can’t take out any extra cash.
• No minimum credit scores are required, but the loan has to be passed by the DU software approval, and there are loan level price adjustments for lower credit scores (but these are better than the price adjustments currently put on conventional loans).
• Condos won’t have to go through a new project review. You will need to be able to show that the condo did meet Fannie Mae guidelines at the time you took on the new loan.
• The DU findings will determine what type of appraisal is required. This could be a full appraisal, a drive by appraisal or none at all.
• Normal underwriting rules apply and the loan has to be underwritten through DU and the debt ratios have to be within the stated guidelines.

There are some loans which will be ineligible:

• These include sub prime loans, Alt A loans and loans which were approved under DU’s expanded approval, as well as reverse mortgages, second mortgages and government loans or Jumbo loans.
• The program is also not available for borrowers in loans which are fixed for less than 5 years, ARMs that have negative amortization, balloon loans or My Community minimum down payment mortgages.

It will take a little while to see how all these pieces fit together, but this is a program that will help a lot of people right now. If you would like  more information on how this program works, or to see if you qualify, let me know.

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