GSEs Announce New Refinance Initiatives for Low-income Homeowners
Written By: Joel Palmer, Op-Ed Writer
Low mortgage rates over the past few years have created a refinance boom. But low-income homeowners have not had the same opportunity to take advantage and lower their payments.
The Federal Housing Finance Agency (FHFA) announced a plan to change that last month. This past week, Freddie Mac and Fannie Mae released their specific refinance programs aimed at helping lower-income homeowners.
Both programs, the Freddie Mac Refi Possible, and Fannie Mae’s RefiNow, are aimed at eligible homeowners earning at or below 80 percent area median income.
“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,” said FHFA Director Mark Calabria. “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.”
Freddie Mac research shows that homeowners who refinanced a 30-year mortgage last year will save an average of more than $2,800 annually and reduce their interest rate by a full percentage point.
Between February and June of 2020, high-income households saved 10 times more than those with lower incomes by refinancing more frequently. In 2020, 10.1 percent of refinances were repeat refinances. The typical refinance loan in 2020 was a loan for about $300,000 and the borrower lowered their rate from 4.3 percent to 3.1 percent.
The two programs are similar. Both will:
Require a reduction in the homeowner’s interest rate by a minimum of 50 basis points and a savings of at least $50 in the homeowner’s monthly mortgage payment.
A maximum $500 credit from the lender for an appraisal if the borrower is not eligible for an appraisal waiver. The Enterprises will provide the lender a credit of $500 upon the loan’ s sale to an Enterprise.
Waive the 50 basis point up-front adverse market refinance fee that is otherwise charged to lenders on balances at or below $300,000.
Freddie Mac also said borrowers in its program will be able to roll up to $5,000 in closing costs into their mortgage.
“Refi Possible could help over a million homeowners with a Freddie Mac-backed mortgage by making it easier for them to refinance,” said Pamela Perry, single-family vice president of equitable housing at Freddie Mac.
In addition to the income requirement, eligible homeowners for these refinance programs will have to meet the following qualifications:
The mortgage must be owned by Freddie or Fannie and be secured by a one-unit single-family residence that is the borrower’s primary residence.
There were no missed payments in the previous six months of application and no more than one missed payment in the previous 12 months.
The loan-to-value ratio is at or below 97 percent.
The borrower’s debt payment-to-income ratio is below 65 percent.
The minimum indicator score is at least 620.
“Racial and income disparities in refinance take-up rates have persisted for far too long. With this initiative, we strive to narrow the gap,” said Sheila C. Bair, Chairwoman of the Board, Fannie Mae.
Fannie’s program will be available June 5. Freddie Mac said it will launch its program in August.
About the Author
As an NAMP® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.
