Home Affordable Refinance Program Expanded to Up to 125% LTV
On July 1, 2009, Secretary of Housing and Urban Development, Shaun Donovan, announced expansion of the Home Affordable Refinance Program to permit refinancing of existing Fannie Mae and Freddie Mac loans with LTVs up to 125 percent (up from the current LTV limit of 105 percent).
The goal of the refinance effort is “to provide access to low-cost refinancing for responsible homeowners suffering from falling home prices.” The expectation is that refinancing a Fannie Mae or Freddie Mac loan will put responsible borrowers in a better position by reducing their monthly principal and interest payments or moving them from a more risky loan structure (such as interest-only or short-term ARM) to a more stable loan.
The move acknowledges that home prices in many areas have fallen so far that many people were shut out of the program. How many more people will be drawn to the program now, however, remains a question, especially since mortgage rates are on the rise since May, 2009.
Rates hit a low of 4.84% on April 28, 2009, but were at 5.45% in June, 2009.
Since mortgage rates have been in the 6% range in recent years, refinancing to the mid-5% range may not be worth it, said Keith Gumbinger, vice president at HSH Associates. A homeowner with a $200,000 mortgage at 6% would see a savings of about $64 a month if he refinanced at 5.5%, and that’s before closing costs. Closing costs may be the deciding factor in the refinancing option.
More than one in five borrowers are now underwater, with homes in parts of California and Florida losing more than 50% of their value, according to Zillow.com, a real estate Web site. Some 20 million people own homes worth less than their mortgages.
Some 20,000 loans have been refinanced so far and banks have extended more than 200,000 trial modification offers, according to the Treasury Department.
To learn more about the Home Affordable Refinance and the Making Home Affordable programs, go to www.fanniemae.com or click here.
Other related posts on this blog: Homeowner Affordability and Stability Plan – March, 2009; What to do if loan officer is not following Home Affordable Guidelines – June, 2009
SOURCE: Fannie Mae
WOuld this not hurt people who are over mortgaged now?
It helps borrowers because now more of them can refinance into a lower interest rate and thus lower their monthly payments.
Increasing LTV to 125% does NOT change the loan amount, only the interest rate – lowering the interest rate by default lowers monthly payment.
Their mortgage amount (principal) stays the same.
It is true that if someone purchased a home at the height of the market, that homeowner still owns a loan on a home that did decrease in market value.
However, it would be unreasonable and irresponsible to expect the federal government/taxpayers to pay for the market downturns/adjustments/economic phases, however you want to call them, or sometimes just outright financial and social irresponsibility on part of certain groups.
Bending the rules to allow the homeowners with 125% LTV to refinance was very generous.
Before many homeowners and investors who wanted to refinance were not able to do so because of the 105% LTV requirement.