Wednesday, July 1, 2009

125% Refi's Announced! The Government Finally Gets it

The government appears to be finally understanding how many Americans are upside down in their homes.

As I've been predicting for months, the FHFA just announced today that they will be allowing FNMA & FHLMC to refi underwater homeowners up to 125% of their property's value.

Previously the cap was at a joke amount of 105% LTV, resulting in President Obama's hyped Home Affordable & Stability Plan being way behind on the estimated number of homeowners it was meant to help.

Whether or not the government should be doing this is up for debate.

The argument against is all for letting the free market work its magic. Get the pain over now and let the economy recover.

Those for government intervention argue that the nation's housing market is "too big to fail". If the government bailed out the "fat cats" on Wall Street, then it should bail out ""Joe Six-Pack" also.

Since we've already started down this slippery slope, it would have been better if they would've done away with the appraisal requirement on refinances all together. A new appraisal hasn't been required on an FHA Streamline refi since 1984. Now with FNMA/FHLMC owned by the government, what's the difference? If it works for FHA, it'll work for FNMA/FHLMC.
Either way, this county's mortgage debt is backed by the government and if payments can be lowered, less homeowners will foreclose. People have to live somewhere.

As a side note, think about what doing away with appraisals on refiances would do to HVCC appraisal issues!

Now, keep in mind that this will take awhile to be implemented as a lot of software needs to be rewritten.
Also, the when the government approved the 105% LTV, FNMA & FHLMC both added pricing hits, which offset some of the gains of lower rates. I would hope they don't do the same this time.

Lastly, let's hope FNMA & FHLMC allow more lenders and brokers to do these loans. Right now, FHLMC forces homeowners to only go to their current lender. These lenders are pretty backed up, some taking 60-90 days or more to close these loans causing many homeowners to miss low rate opportunities.


  1. I think the Government should stay out of it, all together. Let the banks either modify these loans, or lose their a** foreclosing on them. They gave these loans to people they knew couldn't afford it, they need to own up to it and figure out a way that will work for them as well as the homeowner. Let the free market do it's thing. If they start giving 125% LTV loans, won't that lower home values even more?

  2. Unfortunately, I think I agree with the previous writer - it sounds good, it gives us some easier business and income for the moment but are we not just contributing to the mess. I can see it helping a few of my clients that actually came up with Fannie Mae or Freddie loans - but those few are right at 100% or less and I want to get them a better rate to make it through this time. The rest - I just get a bad feeling about all of it.

  3. •What if there was a principal reduction in a loan modification where the borrower and Lender both win?

    •What if there was a way to reduce or eliminate Lenders loss mitigation costs normally associated with a Short-sale or Foreclosure?

    •What if the Lender received something of value for reducing the principal balance on a mortgage in a loan modification other than the borrower’s promise to pay the modified loan?

    •What if there was a real incentive to the Homeowner to stay in their home and not go to Foreclosure or forced into a Short-sale?

    •What if the Homeowner was able to stay in their home without the damage to their credit associated with a Short-sale or Foreclosure?

    •What if the Lender could participate directly in a borrower’s successful retention of their home vs. a second lien position?

    HUD first proposed a program called “Hope For Homeowners” (H4H) last August that was based upon some of those themes above and it has failed miserably -Why? H4H penalized the lender who was taking the biggest loss by passing the benefit of the Shared Equity to HUD and Ginnie Mae when the home appreciated with no return of the forgiven debt back to the original Lender that would reduce principal.

    •Why not a Win / Win?
    •Why not have the Lender that is reducing the principal balance retain the equity?
    •Why should the existing Lender be forced to sell off the now performing senior mortgage?
    •Why not retain the newly performing loan and sell that loan at a future date at Fair Market Value instead of at Par?

    The Homeowner gets a partner in his successful retention of his home instead of having his equity shared for life, as it is in H4H. In a Home Equity Fractional Interest (HEFI) the homeowner retains the right to redeem the HEFI and regain 100% of the home’s equity and allows the Lender that exchanged the reduced principal balance for a HEFI to maximize his recovery?

    John Blanks
    President, EquiDebt Solutions, LLC

    Kevin W. Hardin, CMB, CMC, CMPS
    Director, Mortgage Mediation Group
    A department of the law firm of Thomson Conant, PLC

  4. John & Kevin, thanks for your input.

    I'm fairly sure you're aware that Obama's, "Making Homes Affordable" progam pays the lender $1,000/year for three years and the homeowner $1,000/year for 5 years if payments are kept on time.

    The previous H4H program was a disaster helping no one. With the recent changes to the program it'll be interesting to watch to see how many lenders actually implement the program.

  5. I think that both the makings homes affordable plan which runs all the way until 2012 and the 125% refi plus programs are very good for us and for the housing market as well. Do we want even more foreclosures dragging values down? This is not dragging out the recovery. It is about putting in a bottom. Housing recovery will get consumer confidence back. The consumer used to drive the they just take the bus!