There has been alot of recent news about government-backed mortgage refinancing. I wanted to share our experience to help other homeowners and even renters! Yes, renters!
President Barack Obama
President Obama recently proposed expanding a program called “HARP”. HARP allows Americans, who are current on their loans, to refinance into lower rates even if they owe more on the home than the home is worth.
If this is the first you hear about HARP you are not alone. Many people think it is a government hand-out for people who are irresponsible. It’s not! My husband and I went through the process. Here is our story and what you should know:
Back Story:
In 2008, we found a typical 4-bedroom house in Los Angeles for $415,000.00. With 10% down, we financed the rest at 5.625%. Our payment including insurance and property taxes was $2,600.00 per month. The property had separated master bed and bath quarters that we could rent out for $675.00 per month bringing our payment down to $1,925.00/month.
Renting a house in this same area was about $2,300.00 per month. Because the monthly payment made sense, we purchased in spite of a declining housing market.
Our Experience with HARP:
We wished to refinance into low rates but knew our loan to value ratio on the home would not make sense. However, in September 2011 we learned that our bank, Citibank, could re-finance our loan under the HARP program. Through HARP, the government gives banks incentives to refinance homes up to a 125% loan-to-value.
The catch: the loans must also be owned by government-sponsored entities Fannie Mae or Freddie Mac. President Obama’s new mortgage refinance proposal expands this initiative to loans owned by private holders.
By the way, Fannie Mae and Freddie Mac purchase loans already vetted and lended by the banks. Americans simply pay the government back instead of the bank. This process removes the debt from the banks books. It allows them continuing lending more money into the private sector to spur business activities. It’s smart and has been done this way for generations.
Fannie Mae held our loan so we moved forward. We had to submit payroll stubs, bank statements (2 months), credit reports, our right arms, left toes….just making sure you’re still paying attention. In short, we had to prove ourselves very credit-worthy in spite of our already stellar loan payment history with Citibank.
Our house appraised at $390,000.00, having lost about 5% value in three years. The close date was extended 4 times but our loan officers were top-notch and delivered on all promises by the close date. We were very pleased with Citibank’s professional staff.
By re-financing our loan to 4.25%, we lowered our monthly payment by $390.00 per month. All costs were rolled into the loan. Mortgage insurance terms are unaffected when refinancing through HARP.
If you are doing the math, we are saving $4,680.00 per year! The average family stands to save about $3,000.00 if they participate in HARP. Expanding this refinance option to 3 Million more Americans could pump $9 Billion into the economy or be much needed financial cushion for families.
Our “economic stimulus” plans this year:
Exterior painting
Take a vacation
Hire a cleaning person
And we are able to keep rent low for our tenant.
And that brings me to….
Renters: Call your landlord and tell them about HARP. Investment properties can be refinanced through the program, too. After a few months, renegotiate your lease to a lower payment.
President Obama and Congress have done something good here. Until companies pay living wages and capitalism is about saving instead of spending, this is about as good as it gets. Average Americans need more money in their pocket to make the economy grow. Please spread the word about the extension of this sensible program.
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Freedombytheway
/ February 18, 2012I am not familiar with the petrodollar but would be interested to read about it were you to post on the topic.
I think a lot of us have ideas about what to do about the budget & deficit. First, our elected officials in BOTH houses need to pass a budget (the Senate hasn’t passed one in a few years!) The deficit? Well, kind of like what you do with a household budget. If you owe more money than you’re bringing in, you better cut spending first!
Heather
/ February 20, 2012I think if we ran the show we’d see big improvements Freedom…even in light of our different perspectives. I’ll work on something on the petrodollar. I’m still reading alot on that.
Rio Guzman
/ February 17, 2012I forgot to include this link Heather, so you see who you are dealing with. Please check it out carefully: http://video.google.com/videoplay?docid=7757684583209015812&hl=en&emb=1#docid=6076118677860424204
Heather
/ February 20, 2012Rio, someone on this site recommended it to me last year and I watched. It’s great. It actually formulates my thought on money and even solutions. I know it’s naive, but I think how can that change? And I have to admit, that life is pretty good when you happen to be born in the country that the money masters favor. But for how long??? Thanks for linking to it. It’s time for me to watch again.
Freedombytheway
/ February 15, 2012You’re saving money and you are a good risk. Those are the pros.
Now the cons:
Because Freddie & Fannie are now holding a portion of your morgage and charging a lower interest rate on a higher risk loan, these entities (which are already underwater) are making less money and I and millions of other taxpayers are subsidizing Fannie & Freddie with our taxes.
Would I rather take a risk and subsidize your mortgage than say provide free healthcare and food stamps to someone who illegally entered our country? Yes. But that still doesn’t make HARP anymore altruistic or constitutional than other bloated government entitlement program.
Congratultions, Heather. You are now are part of the entitlement society.
I will not make a judgement on your decision to participate in such a program. You are looking after your own family’s finances and the program is there for the taking.
I just hope you step back and look at the big picture: Our unbalanced budget, our soaring deficit and our inability, in a fast-approaching future–when we will not be able to meet our obligations as a nation. What price to sell out to the devil of big government? $4,680 a year.
Heather
/ February 16, 2012There is a misconception that Fannie Mae & Freddie Mac are entitlements. GSE loans are not backed by the government. What happened in 2008 was a result of the mess created by business and the politicians. They bought loans VETTED by banks. The government bailed out the whole shabang. To that extent, you are right. There is nothing more I can do about it but things are different today. The banks and Fannie Mae are very selective these days.
And actually we are less of a risk now because we have more money. The bank never really knows how much money it will make on a loan. Some people sell in 2 years some sell in 25. It can only earn interest at the decision of the homeowner. And the money we save, a part is going to pay other people so they are paying taxes and circulating the funds.
I will say have been looking at how the petrodollar works and that is concerning. Do you know about it? But the more I learn about the budget/deficit, the more I see ways it can change for the better.
Rio Guzman
/ February 13, 2012And you are right Heather, the brainwashing has worked; we are doing business with the enemy. 1984 is late but it is here: “doublethink.”
Heather
/ February 14, 2012What has been good is extremely competitive incentives going on with the big banks. I know they are pretty much all the same. I rather enjoy my house and I am grateful for it in spite of the greed in the banking industry.
Rio Guzman
/ February 13, 2012If you are going to trust the government and Citibank (or any of the big banks), I wish you lots of luck Heather.
Heather
/ February 13, 2012It’s like with any business transaction I suppose. You take your chances and hope you don’t get screwed if you do things the right way.
Caffeinated OC Mommy
/ February 12, 2012Thank you Heather Darling for this information… the more you know, right? xoxo
Heather
/ February 13, 2012Great to see you! Hope it helps.
Brunolem
/ February 12, 2012As long as you don’t use the money saved on the mortgage to buy i pads, everything is fine.
Glad to see that you are back (still) in the blogging business…
Bruno
Heather
/ February 12, 2012Thanks for saying hello. And yes, of course saving is part of our financial strategy here.
But if we are talking about reviving the economy, that pesky capitalist model of having to spend money (anybody’s!) rears it’s head. I think we are too good at being capitalists in the U.S. The brainwashing has worked.
Hope all is well for you in Thailand. Great to have you visiting.
Citizen Tom
/ February 12, 2012I don’t take issue with what you did. When you live in Rome, you do as the Romans do. If you are going to pay for it anyway, it must seem kind of stupid not take advantage of a wasteful government program. However, part of the reason your home got so expensive and then lost its value was government interference in the credit markets.
http://citizentom.com/2010/08/02/reviewing-the-financial-collapse/
Only the government would be stupid enough to provide a loan for a house that is larger than the value of the house. 125% is idiotic. As it is, when you got your loan, the house was still worth more than the value of the loan.
http://citizentom.com/2008/09/29/what-would-you-do-with-your-money/
Heather
/ February 12, 2012That’s just it Tom. The system has been this way for years. You can only play by the rules and the rules do not favor the average worker.
I actually think we got to his place because business interfered with the government’s laws. Remember Glass/Stiegal? Greed is a human trait whether it’s a human running the government or a business. I’ll check out your links. Thanks for your thoughts.