Fannie/Freddie Creates Opportunity for Higher Risk Borrowers Who Missed Refi Boom

Earlier this month the Urban
Institute pointed out that the unprecedented low interest rates of the pandemic
era have not benefitted everyone. Their research showed that tightening credit
access has meant that low income
homeowners, and those with high loan to value (LTV) ratios or low credit scores
have largely been left out of the rush to refinance.
The Federal Housing
Finance Agency (FHFA) has now announced a new refinancing option to address that
situation.

FHFA says it has directed the GSEs Fannie
Mae and Freddie Mac to implement an initiative to encourage eligible
low-income borrowers to refinance and lower both their interest rates and their
monthly mortgage payments. It estimates that
borrowers who take advantage of this opportunity could save between $100 and
$250 a month.

To qualify, for the loans, which
will become available this summer, a borrower must have a GSE-backed mortgage
on an owner occupied 1-unit single family home and has not missed a payment on
that loan in the past six months or more than one payment in the past year. The
loan’s LTV cannot be higher than 97 percent. The borrower’s income must be at
or below 80 percent of the median for the local area and his/her debt to income
(DTI) ratio cannot exceed 65 percent nor can the FICO score be below 620.

Under the new option, a lender must
provide a minimum reduction in the monthly mortgage payment of $50 and a
decrease in the borrower’s interest rate of at least 50 basis points
. If the
borrower is not eligible for an appraisal waiver, the GSE will provide the
lender with  a maximum credit of $500 to
cover the appraisal cost upon acquiring the loan. The 50 basis point up-front adverse
market refinance fee will be waived for borrowers with loan balances at or
below $300,000.

“Last year saw a spike in
refinances, but more than 2 million low-income families did not take advantage
of the record low mortgage rates by refinancing,” said FHFA Director Mark
Calabria. “This new refinance option is designed to help eligible borrowers who
have not already refinanced save between $1,200 and $3,000 a year on their
mortgage payment.” 

By Jann Swanson , dated 2021-04-28 12:05:11

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Courtesy of Mortgage News Daily

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