Changes Aim to Make Refinancing Underwater Mortgages Easier

Changes Aim to Make Refinancing Underwater Mortgages Easier

If you’ve been unable to refinance your mortgage because your loan is underwater, you’ll be happy to learn that the Obama administration has announced sweeping changes aimed at helping homeowners like you. More specifically, if your loan was sold to Fannie Mae or Freddie Mac on or before May 31, 2009 and your loan-to-value ratio is 80% or higher, you could benefit.

The biggest change here is that they’re removing the old ceiling of 125% LTV ratio from the Home Affordable Refinance Program, which unilaterally excluded even the best borrowers if they lived in an area where home values had plummeted. To qualify, you have to be current on your loan payments, have no late payments in the past six months, or not more than one late payment in the past twelve months, and you cannot have previously refinanced under the HARP program.

As far as the lenders go, they no longer need to warranty their loans, which required them to buy back loans from Fannie Mae or Freddie Mac if the borrowers defaulted. This change will reduce lender liabilities and should make them more willing to work with borrowers. The White House is hoping that increased ability to refinance to a lower mortgage rate will keep people in their homes and spur spending as monthly mortgage obligations decrease.

Specific details will be made available to lenders by November 15th, though certain aspects of the program won’t go into effect until next year.

Source: Chicago Tribune

5 Responses to “Changes Aim to Make Refinancing Underwater Mortgages Easier”

  1. Anonymous

    @Robert I assume that time limit requirement (prior to mid-2009) is because loans issued since then were supposed to follow stricter lending rules/be non-predatory.
    I am annoyed by the time limit, but would otherwise qualify.. As usual, it seems like options are being provided unequally.

  2. Anonymous

    Why have the requirement that fannie or freddie have your loan prior to 2009? I understand why the government wants your loan to be held by fannie and freddie but putting a time limit on that makes no sense whatsoever…

  3. Anonymous

    What if my loan isn’t owned by Freddie or Fannie? I meet all the qualifications outlined above except my loan is owned by VHDA. Would it be possible to refi with another company which would inturn be backed by Fannie/Freddie? I don’t want to be left behind while everyone else is taking advantage of this new program.

  4. Anonymous

    @Patrick – My guess as to constitutional authority is the take over of Fannie & Freddie by Treasury. If that’s not been challenged (which I am unaware of any cases at this time), then an executive order could do it, if there no other “incentive” money involved for the banks (such as in the last program). A mere policy directive to Fannie &Freddie to offer to purchase off banks a new lower standard.


    My personal take is in the world of political football, this is probably a good compromise. I still see articles or interviews with university professors calling for principle write downs — I’d oppose that tooth and nail. This will help some, not sure how many, but the lower revenue for Fannie & Freddie, thus a greater subsidy, is less a concern to me than other areas of government inefficiency.

  5. Anonymous

    I am really concerned about the potential gimmicks involved with a plan without concrete details and the fact that it doesn’t go into effect until next year.

    Also, on what constitutional authority does the President have to create and execute this program? I would hate to get the paperwork started only to have Congress or the Supreme Court cancel the program due to it being unconstitutional.

    Lastly, is this really going to spur spending? Consumers are holding onto every last dollar and while saving them money on their mortgage will help, the price of milk and other goods are going up so I see this a wash at the end of the day.

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