The Federal Housing Finance Agency just issued a press release that Fannie Mae and Freddie Mac are authorized to expand the Home Affordable Refinance Program to 125% loan to value. The existing limit is 105%.
From FHFA Director James Lockhart:
“This expansion will help lenders serve more borrowers with a demonstrated track record of paying their mortgages, but who have been unable to refinance due to significant property value declines.”
Part of this program is to encourage home owners to opt for mortgage terms amortized for less than 30 years to help them get back to being “above water”.
“In conjunction with the LTV expansion, Fannie Mae is offering a 0.50 percentage point reduction in the loan-level price adjustment (LLPA) charged for manually underwritten Refi Plus loans with LTVs above 105 percent and loan terms greater than 15 years up to 25 years. “
Fannie Mae will begin accepting delivery of loan to values over 105% using Refi Plus on September 1, 2009. Refi Plus requires the borrower to return to the mortgage servicer (who they make their payments to). Fannie Mae’s email stated they are “evaluating potential updates to Desktop Underwriter® to allow LTV ratios above 105 percent” meaning allowing those of us who utilize DU to be able to originate HARP refi’s up to 125% loan to value.
I’ve wondered why Fannie Mae and Freddie Mac require an appraisal on a HARP refi. If the home owner is credit and income worthy, why not just refinance the mortgage without factoring loan-to-value? It’s one less foreclosure for the banks to deal with and you’re keeping someone in a home they want to be in. It could also stabilize values in neighborhoods and prevent people from “walking away” and/or trashing the property. The mortgage servicer all ready is exposed to risk with the higher loan to value and may be reducing their risk by making the mortgage more affordable to the home owner. Just a thought…