Saturday, March 14, 2009

FHLMC Allows Refinancing with No Income or Asset Requirements

New guidelines allow lenders to refinance more homeowners, but will they allow their underwriters to do so?

FHLMC is moving quickly to roll out guidelines in accordance with President Obama’s recently announced plans to address the nation’s housing crisis. FHLMC, a Government Sponsored Enterprise and formally a private company, was taken over by the federal government late last year.

For homeowners looking to refinance, FHLMC has introduced their, “Freddie Mac Relief Refinance Mortgage”.

Here are the program’s highlights:

- Primary residence only.
- No 30 day late payments in the last 12 months.
- Allows loan amounts up to 105% of the appraised value.
- The new loan must either reduce the borrower’s interest rate, length of loan or use a fixed-rate mortgage to replace an ARM, interest only or balloon mortgage.
- If the new mortgage payment is within 120% of the existing payment, borrower does not have to re-qualify. This means no proof of income or assets is required! Employment verification is not addressed though.
- Appraisal waivers may be granted using Home Value Explorer software to estimate property values.
- If no existing PMI, none is required on the new loan.
- Existing 2nd mortgages and lines of credit do not factor into the 105% value, but must be subordinated.

A homeowner’s mortgage must be currently held by FHLMC to be eligible. Homeowners can check if FHLMC has their mortgage via phone or the internet:

Freddie Mac

1-800-FREDDIE (8am to 8pm EST)

This is great news for homeowners whose current mortgage was obtained without verifying income and/or assets, or who no longer can do so. The release notes on the program though, do not address if employment must be verified. Hopefully, lenders will aggressively interpret that they don’t need to.

To what extent lenders embrace this program is the big question mark. Many banks and lenders have been exceeding FHLMC and FNMA underwriting guidelines for some time. An example: FNMA recently increased their FICO score requirements for FHA loans to 620, even though FHA doesn’t require credit scores at all. It often appears underwriters are so afraid of making a mistake, that they reject all but the perfect loan applications.

It’ll be interesting to see if the larger FNMA follows FHLMC’s example and also allows income and/or assets to be ignored on refinance transactions.

The biggest question though is, if & when FNMA or FHLMC will do away with appraisals on refinances entirely like the FHA Streamline program does. Rumors continue to float that such a program is being discussed.

Hundreds of thousands of homeowners who owe more than 105% of the value of their homes, are hoping for such a plan.

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