7 Things Michigan Homeowners Don’t Know About the Home Affordable Refinance Plan from Guardian Mortgage Company

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There is a lot of confusion about HARP and who is eligible. This article aimed at Michigan homeowners clarifies their options for mortgage relief.

After several major news publications including the New York Times reported on February 9th, 2012, about the government’s $25 billion settlement with several major banks, phones have been ringing off the hook at mortgage banks across Michigan as homeowners confuse this news with the government’s Home Affordable Refinance Plan (HARP).

Many of the questions highlight common misunderstandings about HARP and show there is still a lot of confusion about the program. According to Brian Isaacson, Vice President of local mortgage bank Guardian Mortgage Company; there are seven misconceptions that come up regularly:

1.    HARP applies to all existing mortgage loans
2.    The $25 Billion Settlement applies to my situation
3.    HARP reduces the principal owed on the loan
4.    Lenders charge the same rates and fees for HARP
5.    HARP applies to debt consolidation or second mortgages
6.    Homeowners who are behind can refinance
7.    Everyone must pay Private Mortgage Insurance

HARP applies to all existing mortgage loans – False. HARP only applies to loans owned or guaranteed by Fannie Mae or Freddie Mac – and those loans must have been sold to Fannie Mae or Freddie Mac on or before May 31, 2009. “Many people don’t know what kind of loan they have,” said Isaacson “and then they are disappointed that they can’t refinance.

The $25 Billion Settlement applies to my situation – This settlement only applies to people who have or had loans with Bank of America, Ally, Chase or Wells Fargo and is not related to HARP. The settlement is compensation for improperly conducted foreclosures whereas HARP is for homeowners still in their homes who are paying their mortgages. “97% of our customers are not past due on their mortgage,” adds Isaacson. “But some still call hoping to get financial relief from the government.”

HARP reduces the principal owed on the loan – HARP allows homeowners to take advantage of historically low rates, but it does not reduce the principal. The full amount is still owed, but the amount per month that must be paid will be lower. “Some homeowners are taking advantage of this opportunity to switch from 30-year loans to 15-year loans. This allows them to pay off their homes faster and to build up equity faster. If all homeowners had 15-year loans instead of 30-year loans in the first place, the mortgage crisis wouldn’t have happened,” said Isaacson.

Lenders charge the same rates and fees for HARP – Because HARP is a government program, many people mistakenly believe that the rates and fees charged by the lenders to implement the program are the same. In fact, the rates and fees vary as much as with any normal transaction. Things like credit score, income, debt and other factors impact the rates and fees offered by lenders. Homeowners need to do their homework to find the best lender for their needs.

HARP applies to debt consolidation or second mortgages – “This is one of the biggest misconceptions we run across, “notes Isaacson. “To make ends meet, people took out debt consolidation loans or second mortgages on their homes at higher rates. They are very disappointed to learn that HARP doesn’t apply to those loans – only the primary loan that is backed by Fannie Mae or Freddie Mac. If they decide to refinance their primary loan under HARP, they will need to get the other lender to take a subordinate position. This means that in the case of a default, the primary loan comes first. Some lenders may not be willing to do that.”

Homeowners who are behind can refinance – You must be current on your mortgage at the time of refinancing with a good payment history for at least 12 months. It is crucial that you do not have any late payments in the last six months. “It is hard. Many Michigan homeowners have struggled with unemployment or medical issues that have affected their ability to pay their mortgages on time. HARP can’t fix economic realities like these.”

Everyone must pay Private Mortgage Insurance (PMI) – The good news here is that borrowers who do not currently pay PMI don’t have to pay it with the new loans – regardless of the loan to value ratio. “This can save homeowners thousands of dollars over the life of the loan,” notes Isaacson.

There is more good news, which is that for those homeowners who qualify for HARP, it can make a huge difference in their financial lives. It could provide a reduced monthly loan payment; a reduction in the term limit for the loan, which builds equity faster; and a more stable mortgage product.

“Refinancing an adjustable rate mortgage (ARM) to a fixed rate loan can save homeowners a lot of money and give them a reliable payment. In addition, paying off interest only or balloon loans can provide peace of mind and start the homeowner down the road to building equity,” added Isaacson. “With today’s historically low rates, it makes sense to act. Rates are bound to go up eventually.”

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Cynthia Stine
Haley Brand
(214) 458-2012
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