does a HARP refi turn a non-recourse loan into a recourse loan?

[twd000]

I am in Arizona and considering buying and bailing once the market starts to improve. I heard the news yesterday about the extension of HARP to underwater homeowners (I am ~150% LTV, owned by Freddie Mac and serviced by BofA). I might be interested in pursing a refinance since my mortgage is at 5.75% fixed, and I might get interest down to 4% from what I've heard.

But before I even pursue HARP, I want to know if it is legally a refinance program; i.e. the original loan is paid off and a new pone replaces it. From my understanding of AZ law, this would turn my current non-recourse loan into a recourse loan, for which the bank could pursue a deficiency judgement.

Basically I want to take advantage of lowering payments while reserving my future right to walk away unscathed.

[lisasxr]

A HAMP refi will cause your loan to become recourse.

[twd000]

sorry I guess I meant HARP, not HAMP. Is your answer still the same?

[lisasxr]

My answer remains the same - I should have written HARP (sorry)

[Erik Sandstrom]

Yes a HARP refinance and any refinance turns the loan into a recourse loan. The reason for this is due to the lender taking a risk financing your loan. If they're going to lower your payments via a refinance, you and the lender are taking an equal risk against future default. What I explain to everyone if they are worried about the loan turning into a recourse loan, find out what your payments would be lowered to via a refinance and take that into consideration. If your payments can be lowered $300 a month, you're losing that $300 each month, might as well be writing me a check for that amount. And if you're worried about the recourse, shoot pay me the difference between what you pay now and what the refinance would be and I'll put it in a savings account for you just in case that time did come you'll have some money saved to cover that deficiency.

They just have increased the LTV requirements to 125% and the CLTV requirements are unlimited, meaning if you have a 2nd mortgage above the 125% threshold you're still ok (at least with my bank) and after the presidents speech it looks like they're going to be removing the 125% cap come November 15th.

Any more questions just feel free to contact me. I'd love to help you determine if it would be in your benefit to refinance. If I were you my biggest concern would be missing out on the best rates in history. Are you planning on staying in the home for awhile? How much do you owe? How much is your home worth? These are all questions I would look into to really determine the right avenue to take.

[twd000]

The potential deficiency judgement would be in the tens of thousands of dollars. The potential refi savings would be a few hundred a month. Unless you plan on staying in the house for 30 years, I don;t see any way the risk is worth the reward.

[twd000]

Since most underwater owners are not readers of this site, or very savvy about real estate law, how many people do you think are going to get unintentionally stuck in their homes because of HARP? It seems like a back-door way for the government to slow the tide of strategic defaults by offering very minimal assistance in terms of interest reductions.

[Erik Sandstrom]

It seems as if this is becoming much more prevalent of an issue. Not until a few months ago have I noticed people worrying about the recourse change. It's always been this way however, if it's not a purchase money 1st mortgage than the loan is recourse.

You need to decide whether you're going to stay in the home, if you're not planning on staying there would be no benefit to refinance. It sounds like that's the direction that you're headed? If the deficiency was 10K and you had a 300$ savings each month than you would have the difference made up in 33 months (3 years) are you not planning on staying in the home for 3 years? Do you feel that the property values are going to continue to decline over the next 3 years? I highly doubt it at this point, but we can never predict the market.

It's definitely a tough decision and something you really have to sit down and evaluate. If you want a quote, i'd be more than happy to provide you with one so you can make an educated decision. Something that you need to consider is that interest rates are SO low all you need is a heartbeat and a job to qualify.

[twd000]

Outstanding loan balance is $172k. Probably couldn't sell for more than $100k (neighbor is listing for $79k and has no bites). Does that mean the deficiency judgement would be $72k if I (stupidly) refinanced then walked away?

If I were to get approved for HARP, would they most likely initiate a new 30-yr fixed for the outstanding principal balance? That would mean paying mostly interest for several years waiting for the market to rebound. I don't expect the market to go up sharply ever again, and wouldn't be surprised if it went down another few % before rebounding. The house is too small for us to stay in long-term and our kids won't attend this school district.

So I would be a landlord indefinitely, netting close to zero each month, if not losing money, waiting for a market rebound that may or may not happen. No thanks.

[Erik Sandstrom]

HARP would be a new 30 year loan and yes it would restart the amortization. You're taking the right things into consideration when determining whether or not it will be in your best interest to stay in the home. That's exactly how I would break it down and determine if it's worth it.

[twd000]

Frankly I find it amazing that any bank would be willing to initiate a "new" loan for someone with 0 equity in the property at 4% interest, in a declining market. Has our government become so much of an easy-money pushover that there is simply no risk to lenders? I'm afraid I know the answer...

[Erik Sandstrom]

It all comes down to what happens with MBS (Mortgage Backed Securities)....if Fannie and Freddie are going to purchase these loans on the secondary market than it makes these programs available that lenders can offer to homeowners. It's all due to NPV, they think that by dropping the interest rates saving homeowners a few hundred dollars each month that they will stay in the home and continue to make their mortgage payments.

But I agree - who get's punished with all this...the taxpayers. I read last night that Fannie dropped their bailout from 154billion to 124billion is the estimate of funds needed. Which is a reduction of 19%, things have definitely slowed down in the foreclosure industry and feels like there's going to be a change in the market. I wouldnt be surprised to see property values climb and the buyers market becoming more prevalent. But this is only my professional opinion, we can never predict anything in the real estate industry.