Mortgage refinancing initiative to help low-income borrowers


WASHINGTON — Federal regulator Fannie Mae FNMA -1.03%

and Freddie Mac FMCC -1.44%

on Wednesday unveiled a new program to help more households lock in historically low interest rates, targeting low-income borrowers who missed last year’s refinancing boom.

The Federal Housing Finance Agency, which oversees the two government-controlled mortgage giants, has announced plans to ease credit requirements, simplify documentation, and waive certain fees for borrowers looking to refinance their loans. The program should start by the summer.

“Last year refinancing increased, but more than 2 million low-income families failed to take advantage of record mortgage rates to refinance,” said FHFA Director Mark Calabria.

To benefit from the changes, borrowers would need to earn 80% or less of their region’s median income and not have missed more than one mortgage payment in the past 12 months. The program only applies to borrowers with existing loans backed by the mortgage giants and it will be up to lenders to participate.

Mr Calabria said in an interview that the program could help borrowers who suffered a drop in their income during the pandemic and who would otherwise not have been able to qualify for refinancing due to business underwriting requirements. The FHFA estimates that borrowers who take advantage of the new refinancing program could save on average between $ 100 and $ 250 per month.

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Fannie and Freddie don’t do home loans. Instead, they buy mortgages and package them into securities, which they sell to investors. Underpinning the popular 30-year fixed-rate mortgage is their promise to make investors default free.

Despite the pandemic, 2020 brought good news for the mortgage market. The 30-year fixed mortgage rate fell below 3% in July and stayed there for months.

Low rates prompted an estimated 8.8 million homeowners to refinance in 2020, says Black Knight Inc.,

a mortgage technology and data company. Of these, 6.1 million refinanced in loans guaranteed by Fannie and Freddie.

Yet borrowers with less than perfect credit – who tend to have lower incomes – have struggled to refinance. Mortgage credit availability, a measure of lenders’ willingness to issue mortgages, is near its lowest level since 2014, according to the Mortgage Bankers Association.

The tight credit environment illustrates a growing divide in the market: Business is booming for mortgage lenders, but their loans are almost exclusively for borrowers with excellent credit histories, especially those backed by Fannie and Freddie.

As of January 2019, 29.3% of Fannie Mae refinances were to borrowers with a credit score below 700, according to the Urban Institute. This share fell to 14.8% in January 2020 and 9.4% in January 2021. The best rates for business guaranteed loans are generally intended for borrowers with a credit score above 740.

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“Tight credit is a major obstacle for many borrowers who wish to refinance their mortgage, even if they already have a loan and lowering rates would make borrowing less risky,” wrote Laurie Goodman and Edward Golding of the ‘Urban Institute.

Democratic lawmakers, consumer advocates and industry officials have pressured FHFA officials in recent months to help low-income borrowers.

“As rates have come down, low-income, low-credit borrowers who can disproportionately benefit from savings on their mortgage seem to be the least likely to receive low-rate refinance loans,” Ohio Sen. Sherrod Brown and a group of Senate Democrats. written in a november letter to Mr. Calabria.

Among other benefits of the new program, borrowers with loan balances of $ 300,000 or less would not have to pay a modest refinancing surcharge imposed by Fannie and Freddie in December. They would also receive an assessment credit of up to $ 500.

Consumer advocates and housing experts welcomed the relief, but said it was an open question about how many borrowers it would benefit. Some have wondered why borrowers would need credit approval for refinancing, since Fannie and Freddie are already taking the risk on their loan. Others said borrowers on a forbearance plan – which allows them to skip monthly payments and catch up later – would likely not qualify for the new program, although they may still be eligible for the new program. conventional refinancing.

“It’s a good start,” Ms. Goodman said. “It appears that the simplified refinancing program could have been larger and included more borrowers.”

Write to Andrew Ackerman at [email protected]

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