Refi Plan for Agency, Non-Agency Borrowers Announced
February 1, 2012
President Obama this week provided more details to a plan which will allow borrowers who are current on their mortgage payments to refinance into a lower-cost GSE or FHA loan.
The plan, which the president announced during his State of the Union address last week, will give borrowers access to streamlined refinancing through Fannie Mae and Freddie Mac. Borrowers with non-agency mortgages will be able to refinance through a new, separately funded refi program run by the FHA.
The refi plan will be paid for by fees charged against banks.
The president called on Congress to pass legislation to establish a streamlined refi program for both agency and non-agency borrowers, who could not obtain refinancing because of stringent underwriting standards and high downpayment requirements.
To qualify for non-agency refinancing, borrowers must be current and have a minimum 580 credit core. The loan cannot be larger than the current FHA conforming loan limits in the borrower’s area. FHA limits vary by area and are based on the median home price, which is set at $271,050 in the lowest-cost areas and as high as $729, 750 in the highest cost areas.
In addition, the non-agency loan must be for a single-family, owner-occupied principal residence.
Borrowers will not be required to submit a new appraisal or tax return. They only need to show proof of employment. An unemployed borrower may be eligible if they meet FHA’s full underwriting requirements and present limited credit risk.
The president will seek legislation to authorize principal writedowns of “deeply underwater” non-agency loans, which is defined as a loan with more than a 140 loan-to-value ratio, before they are qualified for refinancing.
A separate fund will be created for the FHA refinancing component to ensure losses will not impact the agency’s Mutual Mortgage Insurance Fund.
Some borrowers who are eligible for low-cost FHA refinancing have complained of being denied by direct endorsement lenders for fear of losing their FHA approval. To resolve this issue, the FHA is removing these loans from “Compare Ratio,” a process by which FHA lender performance is reviewed.
All underwater borrowers who refinance under the program can either opt for the lower monthly mortgage payments or apply the savings to rebuild equity in their homes. The president will seek legislation providing for the government-sponsored enterprises and the FHA to cover the closing costs of borrowers who choose this option, which is estimated to save each borrower $3,000.
Additional analysis of this refinance program will be in the Feb. 3 issue of Inside FHA lending.
Other areas of interest
- Mortgage Originations
- Mortgage Servicing
- Fannie Mae
- Freddie Mac
- FHA, VA
- HUD
- Non-Agency MBS
- GSEs
- FHFA
- FHA Lenders
- FHA Programs
- Refinance Programs
- FHA & Ginnie Mae
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