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Home Affordable Refi Program Expanded

Homeowners who are up to 125 percent underwater will be allowed to refinance under the Obama administration’s Home Affordable Refinance Program if they are current on their payments and their loan is owned or guaranteed by Fannie Mae or Freddie Mac.

The federal regulator overseeing Fannie and Freddie has boosted the program’s loan-to-value (LTV) ceiling from 105 percent to 125 percent to allow more homeowners to take advantage of lower mortgage rates.

Fannie and Freddie will also offer pricing incentives to encourage borrowers with LTVs above 105 percent to refinance into 20- or 25-year loans to pay down principal more quickly and reduce lifetime interest payments, the Federal Housing Finance Agency said.

When the Home Affordable Refinance Program was announced in February, the Obama administration said it hoped that as many as 4 million homeowners will be able to refinance under the program.

But some critics said the program wouldn’t help borrowers whose loans aren’t backed by Fannie and Freddie, and that the 105 percent LTV ceiling would exclude many who are deeper underwater because of steep home-price declines (see story).

The Mortgage Bankers Association last month revised downward its forecast for 2009 loan originations by $700 billion, citing rising interest rates and the slow pace of Home Affordable refinancings — about 13,000, the group said (see story).

In announcing the increased 125 percent LTV ceiling today in Las Vegas, Housing Secretary Shaun Donovan said nearly seven in 10 of homeowners with mortgages in the city owe more than their homes are worth.

Donovan said “tens of thousands” of refinancings and trial loan modifications are under way. Under the parallel Home Affordable Loan Modification Program, 200,000 borrowers have received offers for trial loan modifications, Donovan said. That program, which provides incentives to loan servicers and borrowers for loan modifications, is intended to help up to 4 million borrowers.

In broadening the Home Affordable Refinance Program, the Obama administration could end up going beyond its original stated goal of helping “responsible” homeowners — those who purchased a home with a down payment, only to see their equity shrink or disappear as home values fell.

A 20 percent down payment equates to an original LTV of about 80 percent; a home purchased with no down payment would have an LTV of about 100 percent.

A homeowner who made a 20 percent down payment on a $200,000 home would have had a $160,000 mortgage. Excluding any reduction in principal since purchase, the value of their home would have had to decline by 36 percent, to $128,000, for their LTV to grow to 125 percent.

A key feature of the program is that it allows borrowers who made down payments of 20 percent or more to refinance without having to obtain mortgage insurance. Borrowers who were required to obtain mortgage insurance on their original loan because they made a down payment of less than 20 percent aren’t required to obtain additional coverage.

Home Affordable refinancing into lower-interest-rate loans will help many borrowers achieve lower monthly payments. Those who can afford their current monthly payments may consider moving into a loan with a shorter term than the typical 30-year mortgage, FHFA said.

To encourage the practice, Fannie Mae said it will offer a 0.5 percent reduction in its loan-level pricing on refinancings with LTVs above 105 percent and loan terms of 20 and 25 years.

Freddie Mac said it will offer a similar incentive to refinance into a 25-year loan. The expanded LTVs are available now when borrowers apply for Home Affordable refinancings through their current servicer, Freddie Mac said, and borrowers will not need to be re-underwritten in most cases.

The expanded LTV ratio will become available Oct. 1 to borrowers who wish to refinance with other lenders affiliated with Freddie Mac. Those lenders will be required to re-underwrite the borrower through Freddie Mac’s automated underwriting service, Loan Prospector.

Fannie Mae said it will begin taking delivery of loans with expanded LTVs on Sept. 1. Borrowers with LTVs above 105 percent must refinance through their existing loan servicer, and the new loans must be fully amortizing fixed-rate mortgages with terms greater than 15 years up to 30 years.

Borrowers who wish to take advantage of the Home Affordable refinancings must have a mortgage that’s already owned or guaranteed by Fannie Mae or Freddie Mac, and the separate guidelines developed by each company would apply to their refinance.

Borrowers can determine whether Freddie Mac owns their mortgage by completing an online form at

Fannie Mae’s loan lookup tool is located at