Homebuyers

Fannie Mae, Freddie Mac Unveil New Refinance Program for Low-Income Families

Last year saw the highest volume of mortgage refinancing since 2003 thanks to historically low interest rates, but according to the federal government, millions of low-income families were not able to take advantage of those low rates.

That could soon change because low-income families whose mortgages are backed by either Fannie Mae or Freddie Mac will soon have a new option for refinancing their mortgages.

The Federal Housing Finance Agency (the government agency that regulates Fannie Mae and Freddie Mac) announced recently that Fannie Mae and Freddie Mac will soon be offering a new refinance option that could save borrowers between $100 and $250 per month.

"Last year saw a spike in refinances, but more than 2 million low-income families did not take advantage of the record low mortgage rates by refinancing," FHFA Director Mark Calabria said in a statement. "This new refinance option is designed to help eligible borrowers who have not already refinanced save between $1,200 and $3,000 a year on their mortgage payment."

According to the FHFA, the new refinance option is limited to certain borrowers but features both a reduced interest rate and a lower monthly payment than those borrowers have now.

To qualify for the new refinance option, a borrower must (details from the FHFA):

• Have a 1-unit single-family mortgage that is backed by Fannie or Freddie and is owner-occupied
• Have an income at or below 80% of the area median income
• Have not missed a payment in the past six months, and no more than one missed payment in the past 12 months
• Not have a mortgage with a loan-to-value ratio greater than 97%, a debt-to-income ratio above 65%, or a FICO credit score lower than 620

According to the FHFA, the program includes a requirement that the lender provide a savings of at least $50 on the borrower's monthly mortgage payment and a reduction of at least 50 basis points (0.50%) on the borrower's interest rate.

Additionally, the program stipulates that lenders may provide a maximum of $500 credit for an appraisal if the borrower is not eligible for an appraisal waiver. Fannie or Freddie will then provide the lender a credit of $500 when the loan is sold to one of the government-sponsored enterprises.

Beyond that, the GSEs will grant a waiver of the 50-basis-point up-front adverse market refinance fee for borrowers with loan balances at or below $300,000.

Both of the GSEs welcomed the new refinance option.

"We look forward to implementing Fannie Mae's new RefiNow option as soon as possible to ensure all eligible homeowners can avail themselves of this money-saving opportunity," Fannie Mae CEO Hugh Frater said.

Frater's sentiments were echoed by Fannie Mae Chairwoman of the Board Sheila Bair.

"Racial and income disparities in refinance take-up rates have persisted for far too long," Bair said. "With this initiative, we strive to narrow the gap. We thank FHFA for its strong leadership to help all eligible homeowners reduce their monthly housing costs by taking advantage of the historically low mortgage interest rates."

Donna Corley, Executive Vice President and Head of Single-Family Business at Freddie Mac, said that the company is looking forward to providing this option for certain borrowers.

"Millions of homeowners have benefited from refinancing to reduce their monthly mortgage payment and build long-term wealth. Freddie Mac's new Refi Possible mortgage creates more equitable opportunities by making it easier for homeowners in lower income brackets to refinance their mortgage," Corley said.

"Refi Possible reaches many homeowners who can benefit from refinancing and provides flexibilities that incentivize our clients to serve these eligible borrowers moving forward," Corley continued. "Our goal is to expand access to credit responsibly and make sure we are supporting sustainable homeownership."

Neither the GSEs nor the FHFA stated an exact date when the program would be available for borrowers, but did state refinance option would be available to eligible borrowers "beginning this summer."