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06 January, 2010

Obama Home Affordable Program not for me

I feel left out right now.

And it's not fair. But there's nothing I can do about it.

My credit is 820. As you probably know, that's good credit. Better than good. I bought a home about 2 years ago, a little bit past the peak of the market. Prices had started coming down. At present, my house is probably worth just about what I paid for it, give or take a couple of percent. So I'm not in the red. I'm not "upside-down", as they call it.

But I can't get in on the refinancing fun. Everyone else got the 4.5%, the 4.75%. Not me. And the simple reason is that the loan that I was sold, which sounded perfectly good at the time, is a loan that is being excluded from consideration for virtually all refinancing plans. When I bought my place, I was only able to make a downpayment of 10%. There are two ways that this is usually handled. Option 1 is to have something called "PMI", or Mortgage Insurance, which is essentially a tax that the bank charges you for not being able to put down 20%. Option 2 is to do two mortgages; a primary mortgage for 80%, and then a secondary (sometimes called a Home Equity Line of Credit) for the 10% that makes up the difference of what you were not able to put down (in some cases, these were being issued for the entire 20% remainder - i.e. zero down mortgages).

The great offer that I was given by my mortgage broker was an Option 3, which was a 90/10 loan with "lender-paid" PMI. What this means was that I have a single loan for 90% of the value of the home (10% downpayment), and the mortgage insurance was folded into the interest rate, rather than being charged explicitly as a separate item. This was supposed to be a better deal for me, according to him. But now, I can see, for a variety of reasons, it was not a better deal.

First, if you do an 80/10 loan, then you could eventually pay off your 10% portion, and have a rapidly decreased effective interest rate, since those 10% portions are usually a crappy rate. Second, if you have PMI, you could always have your home appraised if it gains sufficient equity, and then you would be absolved of the PMI payment, and again, save a couple of hundred a month.

But with the option I have right now, I am stuck, because all of the money that Obama's plan is throwing at borrowers good and bad, is not going to anyone with loans such as the one that I have with GMAC Mortgage. If you've got PMI, lender-paid or otherwise, you do not qualify.

There's a massive amount of irony here, because there are people who have completely horrible credit, or have been missing payments left and right. They will qualify for this refinance program, even though they'll likely continue to miss payments. I have never missed a payment, have excellent credit, and will be stuck at 5.75% indefinitely, because at the point where I have enough equity to qualify for refinancing, the interest rates will likely be too high to justify doing it.

3 comments:

  1. Be thankful your deal doesn't include you paying your PMI. I'm not sure how long I'll have to wait to try for an appraisal to see if I can drop it. My only solace is that I'm gonna get a sexy $8000 in addition to my standard tax return. New dishwasher, new water heater and the rest goes to savings.

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  2. 5.75% is still a terrific rate. Seriously-- there are a LOT of people who would be OVERJOYED to be paying at that rate. It's too bad that you don't see yourself as fortunate, since you've got a wonderful home, a wonderful job, in a wonderful city, with a wonderful partner, play in a wonderful band, have wonderful friends, and on top of it, a wonderful car with wonderful gas mileage. I guess having that <1% interest rate you may or may not have the potential to knock off a loan on your beautiful home must be a killer.

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  3. I would be so happy with 5.75%! However I do understand what your saying....I've paid every bill on time for 5 years and have great credit but I'm "underwater" and can not refi my ARM. I was told this is what I had to get to get the house I wanted, and I could refi in a year or two and get a great loan. That was not the case, I was soon "underwater".

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