Homeowners

Fannie Mae, Freddie Mac Expanding New Refinance Program

Earlier this year, Fannie Mae and Freddie Mac announced new refinance programs targeted at lower-income borrowers who previously may not have been able to refinance their mortgage to decrease their monthly payment. Aiming to allow more people to take advantage of the current market's lower interest rates, the companies will soon be expanding these programs.

The Federal Housing Finance Agency (the government agency that regulates Fannie Mae and Freddie Mac) announced recently that Fannie and Freddie will be expanding these programs to increase the number of people eligible to participate.

Currently, Fannie Mae's RefiNow and Freddie Mac's Refi Possible programs are available to borrowers with income at or below 80% of the area median income.

Beginning in January 2022, that income limit will increase, making more people eligible to take advantage of the programs. The programs will soon also be available to borrowers with incomes at or below 100% of the area median income.

According to FHFA Acting Director Sandra Thompson, raising the income threshold will "significantly" increase the population of potentially eligible borrowers.

"We first announced these programs in the spring, as a way of helping low- and moderate-income borrowers access the same refi opportunities that higher-income borrowers were using," Thompson said in a speech at the Mortgage Bankers Association 2021 Annual Convention in San Diego. "Take up of these programs has been slower among some of the larger depository lenders, and these new changes incorporate the feedback we have received about how to make the programs more effective and how to reduce frictions in the process."

According to Freddie Mac, borrowers who take advantage of the program can lower their mortgage payment between an estimated $100 to $250 per month.

"By taking advantage of lower interest rates, borrowers can reduce the share of their income they have to spend on housing costs," Thompson said. "And given that these are already borrowers with an Enterprise-backed mortgage, they can access these financial benefits with minimal additional risks or costs to the Enterprises or taxpayers."

According to Thompson, part of what drove this decision is the "significant numbers of lower-income and minority Enterprise borrowers stuck in rates 30 to 60% higher than the current average."

Per Fannie and Freddie, the changes to the income limit take effect in January 2022.

But that isn't the only change coming to RefiNow and Refi Possible.

According to the companies, they are immediately removing the requirement that a borrower's monthly mortgage payment be reduced by $50. Under the current rules, lenders are required to provide borrowers with a $50 reduction in their monthly payment and a reduction of at least 50 basis points (0.50%) in their interest rate.

Moving forward, lenders will no longer be required to provide a monthly savings of at least $50. However, lenders will still be required to lower the borrower's monthly payment by some dollar amount, but it can be less than $50. The borrower's interest rate must still be lowered by at least 50 basis points.

These changes take effect immediately.

The other qualification standards for these programs remain the same as before, including:

• Have a 1-unit single-family mortgage that is backed by Fannie or Freddie and is owner-occupied
• 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

"Freddie Mac is taking action to ensure more deserving homeowners can benefit from today's low mortgage rate environment through refinancing," Freddie Mac Executive Vice President and Head of Single-Family Donna Corley said in a statement.

"Working with our lender clients and the Federal Housing Finance Agency, we are now able to help even more lower-income households reduce their interest rate and their monthly mortgage payment through our Refi Possible solution," Corley added. "Our priority is to create more equitable opportunities that responsibly support sustainable homeownership."

Those sentiments were echoed by Fannie Mae Executive Vice President and Head of Single-Family Malloy Evans.

"We introduced RefiNow earlier this year as an option for lower-income homeowners who often miss out on refinancing options to reduce their monthly mortgage payments and increase their potential monthly savings," Evans said. "The enhancements we announced today help expand the reach of RefiNow to additional creditworthy homeowners, further enabling equitable and sustainable access to homeownership."