On the heels of the latest stimulus package, or whatever it was called this time, Fannie Mae and Freddie Mac have provided the home loan industry more details about their new requirements. Some of the guidelines are actually more borrower-friendly than what was initially believed. Eligible homeowners must have a mortgage that is either held by these agencies in their portfolio or is part of a mortgage bond guaranteed by them. The crucial element is that homeowners seeking to refinance through them have to have a solid payment record, for instance no lates during the last 12 months.
Among the more flexible aspects is how the credit score, or FICO score, is handled. For a majority of applicants Fannie Mae and Freddie Mac will put aside the usually strict cutoff points, allowing more leeway to get people approved.
They will not require private mortgage insurance, or PMI, on new refinances where the equity is less than 20%. That is very helpful in many hard-hit areas because insurance firms have generally pulled out of them, making refinancing impossible.
For homeowners with an existing second mortgage, the news is also encouraging. There is no limit how large it can be, but it has to remain on a secondary status behind the first mortgage.
Fannie Mae lets the homeowner shop any of its approved lenders and get the refi done that way. Freddie Mac is different. It requires the use of the current home loan bank or loan servicer. To find out if either one of these two owns or guarantees a particular mortgage, the loan servicer would have that information.
Also, second homes and investment properties from one to four will be eligible now. Previously they were excluded, much to small-time investors' dismay. They have to be presently in Fannie Mae or Freddie Mac portfolio and payments must be current.
These are the program highlights. They are going to be helpful in keeping more at-risk borrowers in their homes. The one rule that was not loosened up was the loan-to-value, or LTV, ratio. It remains at 105% maximum, or the loan balance cannot go over more than 5% of the property's value. That will leave out a lot of homeowners in severely-depressed states like Arizona, California, Florida and Nevada from being eligible to refinance. The prices in them have plunged out of range for many and will probably put these states on a slower road to recovery.