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The Obama administration rolled out the Making Home Affordable program. This program has 2 main components, the refinance side and the modification side. In this post I will focus on the refinance section
Making Home Affordable refinances are broken up into two categories, Fannie Mae or Freddie mac. Each GSE ( Government Sponsored Entity) is doing the program their own way but there are key differences between the two. I just want to give you an overview of each program.
The Fannie Mae version, known as the Fannie Mae DU Refi Plus, allows homeowners to refinance up to 105% of their home’s value without the requirement of private mortgage insurance. It is basically the same as the standard program except for the liberal Loan to Value guidelines. A key aspect is the fact you can not pay off a second mortgage. You may only refinance the main mortgage and you must subordinate any existing 2nd liens. The maximum LTV for the 1st mortgage will be 105% and unlimited CLTV’s for the subordinated 2nd lien. As well, they are a little looser on late mortgage payments. As long as you didn’t go 60 days late on the mortgage you are still eligible. You are still subjected to standard fico score price adjustments and loans are being underwritten full income and asset verified. This will help some but not all.
To be eligible your current mortgage must be secured by Fannie Mae and you must not have private mortgage insurance currently. This has been the biggest problem for most people who would love to refinance under this program. Chances are that if you are at a high LTV currently, you probably already have PMI. There has been some talk about opening this up, but not yet.
I believe the Freddie Mac version is a better program but can be difficult for some to obtain due to the limitation on financing closing costs. Under the Freddie Mac Relief refinance you can only finance $2500 in closing costs and escrows. So if the cost to do your loan is $5000, you need to come out of pocket for the remainder above the $2500. In certain states not an issue, by like in my home state of New York this can be difficult due to the high cost of financing stemming from state mortgage taxes and general cost of doing business.
Another key component to Freddie’s version is that you MUST go back to your existing lender. You can not move to another lender. You can still go through a broker for access to wholesale rates, but only if your broker has an existing relationship with your current lender.
The best part to Freddie’s version is that there are no rate bumps for credit scores or LTV’s. If you’ve been no more than 30 days late on the mortgage, you will get the best possible rate regardless of credit score. This is huge!
Now how about this, Freddie will not need to verify your current income or assets! This makes perfect sense. If you have been paying the mortgage and we are simply lowering the rate and payment why wouldn’t we do it. It’s the same loan, same borrower regardless of income. Someone at Freddie Mac has their brain working, kudos to them. Many times Freddie Mac will waive the need for a physical appraisal if automated information is available. This makes the process a little easier and a little less expensive.
Both of these programs are strictly for rate and term refinances, no cash out available. In addition no pay off’s of second mortgages allowed on either program.
If you can qualify for one of these loan programs and make your mortgage payment more affordable, success has been had. Look for more openings in this program throughout the coming year. It just might keep some people in their homes. Find out more reading mortgage tips.
Comment by Dean Goetz Attorney
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