News from the mortgage industry changes so rapidly these days that it becomes difficult to keep up, and requires some reading between the lines to understand.
Early this month we learned that Fannie Mae was easing standards on mortgage refinancing as of April 4. This news applied only to mortgages that Fannie either owns or guarantees.
Under the Homeowner Affordability and Stability Plan, homeowners who have been making mortgage payments on time but who have been struggling to do so would be able to refinance as long as their existing debt was not more than 105% of the home’s actual value.
According to the White House, up to 5 million borrowers will qualify and be able to lower their monthly payments.
Homeowners with at least 20% equity in their homes could refinance even with scores below 580 and the documentation requirements would be eased to streamline the loan process. For others, the credit score requirement remained at 680.
Foreclosure not only hurts families, it is expensive for the mortgage holder, especially in a time when the current value of a home might be far less than the outstanding mortgage balance. Thus it stands to reason that Fannie Mae will do its best to keep the mortgages it holds out of foreclosure.
From that standpoint, it is interesting that this help is to be available only for mortgages on owner-occupied homes; and loans with subordinate financing, interest-only features, or balloon mortgages will not be eligible for the program.
Then, in mid-February, both Fannie Mae and Freddie Mac announced that they will begin imposing higher fees on more borrowers beginning April 1st.
Credit score requirements will be going up, along with down payment requirements. Kenneth R. Harney, reporting in the Washington Post, gave this example:
A person making a 25% down payment and carrying a credit score of 699 would be subjected to a 1.5% fee. Those with scores between 700 and 720 would be charged 0.75% and borrowers with a score of 739 would pay an extra 0.25%.
This report did not mention Fannie and Freddie guaranteed or owned mortgages – so we could surmise that the restrictions are aimed at reducing the number of new loans, or discouraging refinance of loans not held by Fannie and Freddie.
Since part of the economic stimulus package was aimed at getting the housing market back on its feet, this move is being seen as counter-productive. In fact, some mortgage industry leaders are asking the government to step in and remove the fees.
Author: Marte Cliff
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