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…
I wonder how the mortgage insurance companies are going to figure in all of this? Are we going to be looking at increased MI premiums?
It’s going to be interesting to see how long banks/lenders will take to sort this out. Fannie all ready has the adjusted price tables posted.
I spoke with my lender back when I first heard about Making Home Affordable, and they told me that because my LTV was so close to the highest allowed at that time (105%), my interest rate would not be lower than my current rate (6.125). Is that likely to still be the case even though the ceiling is going up?
Also, if they will accept delivery of loans on September 1, when should borrowers contact their lender to see about starting this process?
Seattle Veggie, a lot is going to depend on your mid-credit score too. Fannie Mae has posted the price hit’s on their site–lenders/banks may have pricing overlays too. Currently with this program, you would need to do this with who ever you are currently making your payments to.
It will be interesting to see how long it will take lenders to adopt this program… if/when I hear of anything, I’ll post it here. We did a big guessing game w/increased the revised conforming loan limits (it seemed like months after Fannie announced they would buy the loans).
Wow… “You can be above water in only 98 months, rather than 130, if you go with the 25year plan rather than the 30year!”
I’m not happy to see the government feel they have to do this, and I’d like the market to find the proper price levels rather than be propped up; however, if someone is willing to refi a loan that isn’t projected to be above water for over 10 years rather than walk away, I can totally respect that.
Gene,
I’m not so sure this is going to prop up the markets that much. It’s going to be up to the mortgage servicer and the pmi company (if the original mortgage has pmi) if they’re going to do the refi.
Are you saying you can respect someone who will walk away from their mortgage or that you can respect the program if it prevents people from walking away?
Gene,
I think it’s about getting rid of toxic loans. Allowing people to refi out of subprime. That’s a good thing.
but….they’re refinancing into subprime at 125% LTV. I can’t imagine rates will be pretty on this product.
Also, I thought the subprime mess was mostly behind us. These 09 folks would likely be the Alt A and Prime ARM homeowners.
The LLPA’s for this are risked based and can be found by clicking the link above. Someone with excellent credit won’t be whammo’d the same as someone with iffy credit.
It’s not really subprime–I look at it as a loan mod for folks who are not in financial distress.
If someone elects to have a term shorter than 30year amtz, the LLPA is 0.5% less in fee.
Someone with a 720 or higher credit score does not have a credit score hit with LTVs up to 125%. The program does have 1.5-2% hit for LTVs 105% and higher.
This program is suppose to encourage paying down the principal quicker with a shorter term (like a 20 year) and lower rate. The refi has to make sense.
unfortunately, it won’t allow refi out of “normal” subprime. Your current loan must be owned by Fannie Mae to start with. Most of the typical subprime was owned by Fannie.
I will allow people to get out of the conventional arm products, but all those 2 and 3 yr subprime loans are still going to be at risk.
I would like to see the program (HARP) treat including purchase money second mortgages as rate term. Currently the program does not all second mortgages to be included in the refi and subordinating a second mortgage is challenging–especially at extremely high loan to values.
A “regular” refinance paying off a second mortgage used to purchase the home is treated as “rate-term”…but the HARP program does not allow it. I’m having to tell a lot of those home owners that they’re in a challenging situation.
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Are you saying that they will or will not allow combining a 1st & 2nd mortgage (taken @ the same time)? What about MI? I have a difficult time getting MI for a borrower @ 95% LTV today. Will brokers be able to originate these loans or will it be strictly the servicing lender that can refi these loans up to 125%? Great article. Thanks for the info.
I don’t believe that 2nd mortgages will be allowed to be paid off regardless of when they were obtained (at purchase or later)–I didn’t see anything changing that guideline.
Private mortgage insurance is another mystery…
Right now, the expanded loan to value is for the mortgage servicer–if a home owners has a LTV 105.01-125% and they want to refi, they need to contact who they make their mortgage payments to. This is not available to mortgage brokers yet.
Since most of the existing servicers are the “big names” like Citibank, Wells Fargo, Bank of America, Flagstar, etc. the homeowner is going to be waiting a long, long time to be able to refinance if they are not allowed to utilize the services of a Broker. Brokers can get loans done mucn faster than going directly to the source. My exiting home loan is serviced by Citimortgag and I would rather jump naked on a burning cactus than have to deal with anyone there dirctly UGH…FNMA had better change their tune soon and also get rid of the HVCC appraisal guidelines…that is the biggest problem to these refinances and why they take way too long!!!
FHA allows streamline refinances without an appraisal and with limited documentation; they have neen doing it this way for decades, why can’t FNMA follow suit..as long as the payments have been current!
Exactly, I think it should be treated more like a FHA Streamline….and they could add having a job–FHA Streamline does not verify employment/income (currently).
If I’m not mistaken, Citi elected not to participate with the HARP program. Homeowners needing the higher LTVs will have to wait to see if their servicer will even deal with them.
I think the bigger is the the Morgage Insurance. They have to get approval from the State Insurance Commissioner to get the premiums approved. Right now they are limited to 105%. So this may not help that many people as the original loan would have had to start at 80% or less (no mi) to qualify until the MI companies get state approval.
Here’s the updated FAQ’s https://www.efanniemae.com/sf/mha/mharefi/pdf/refinancefaqs.pdf
125% ltv loans??? where have I heard those numbers before??? ummm, let me think thats right, Bear Stearns, World savings just to name a few that liked the sound of those numbers! Thanks US GOV for picking at that scab.
I’d rather see rates reduced with a shorter term (as this program encourages) than having mortgage balances forgiven.