If you’ve been around FiscalGeek for a while you may remember back to a post I wrote in the early days on the Making Home Affordable program and my pending refinance. Well things went horribly trying to utilize the program and I eventually abandoned the whole process and vowed to stop doing business with Wells Fargo see my guest rant at The Centsible Life. When I initially was looking to refinance I contacted a broker at the recommendation of a good friend. By the way this is one of the best ways to find a good mortgage broker. We talked for a bit and due to the questionable value of my house versus what I owed he didn’t recommend going forward as I would be out my appraisal fee without much chance of refinancing. I tried Wells Fargo it went wrong and I forgot about the whole thing. Well a couple of months ago Brad at Coulombe & Evered gave me a call to check in and mentioned that he might be able to help us refinance after all with some of the more formalized programs. So I said great and we got started initially trying a standard refinance.
Not so Favorable Appraisal
Well we got going on the process and as I had sort of expected the appraisal of our house come in under the combined total of our first and second mortgages so a traditional refinance was out of the question. So Brad started exploring the Freddie Mac Relief Refinance Mortgage as my mortgage was a Freddie Mac mortgage. Initially these programs only worked directly with your original mortgage lender. Since I had such a bad experience trying that before I was happy to work with someone who was interested in customer service. The Freddie Mac program has an Open Access opportunity that lets you work with any Freddi Mac approved seller/servicer.
How the Program Helps
The Freddie Mac program allows you have a mortgage LTV (loan to value) ratio of up to 125 percent. So for instance if you had a home with a $350,000 mortgage but it was only worth $300,000 it has a LTV ratio of $350,000/$300,000 or 116.66%. I was able to squeak in with those qualifications. This lets you take advantage of historic low mortgage interest rates. Ah but there is a catch.
Caveats and Pitfalls with the Freddie Mac Relief Program
Like most any government program it’s not a simple process. I began this journey just over 2 months ago and we sign the papers this afternoon. In many ways you are at the mercy of your mortgage lender, in my case we had to get Wells Fargo to agree to subordinate my 2nd loan with a new first mortgage and the best way to do that is replace my first with yet another Wells Fargo mortgage. As much as that hurts to keep using Wells dropping over a whole percentage point and taking my mortgage payment down $250 a month is worth it.
The other issues have to do with the minimums you can lump into your new mortgage. You can rollover a maximum of $5000 in closing costs which include the closing costs, financing costs and prepaids/escrows. The escrow and prepaids alone are very high because my area has crazy property tax rates so I’m right on the edge. I was going to have to bring in cash to the closing for the difference but my broker took off some fees to cover it. It’s ridiculous to think of a program to help out homeowners that requires them to show up with cash. I’m probably an extreme case and most won’t hit this issue.
Interest Rates Slightly Higher
The other issue with the Relief program is my interest rates are not as good as they would have been with a traditional refinance. Don’t get me wrong 5.25% is fantastic but the going rates for convention 30 year loans right now is 5.00% in my area. So I’m eating a quarter of a percentage point with the program. Sure it’s a relief program why wouldn’t it be higher.
Why Wells Fargo continues to Suck
Wells has not helped this process at all and as part of the refinance for some strange reason to make things look right on their balance sheets they are requiring that we pay down our second mortgage by $900 at the time of closing. Now I’m fine with paying down on debt that I’m going to be attacking anyways after we pay off our car, but again not so helpful to be bringing in additional cash to use a relief program. I think it was done out of spite.
Still Happy to be Saving Money
After all of my complaining I’m happy to be able to take advantage of much lower monthly payments and I’m using every extra cent to continue to throw at our debt, our refinance will pay for itself in just under a year so it was definitely worth the effort. You might want to look into this yourself if you have a Freddie Mac mortgage. You can check by going to Fannie Mae they also offer relief options under the Making Home Affordable program. Good luck and let me know if you have any good or bad stories.
Photo Courtesy jadjadjad