The Federal Housing Finance Agency Monday morning unveiled long awaited changes to a White House refinancing program, waiving the LTV cap and certain origination fees on underwater Fannie Mae and Freddie Mac loans.
In total, the changes could eventually lead to up to $1 trillion of new refinancings, according to estimates made by different housing analysts.
FHFA also is waiving what it calls “certain” representations and warranties on these 'HARP' refis, which means lenders will not be held liable for buybacks. (The White House refi plan is being carried out through the existing HARP program.)
Currently, most lenders will not refinance underwater GSE loans because of the risk of a buyback if the new loan goes bad. Consequently, most borrowers trapped in underwater mortgages can only get refinanced by their current servicer.
Under the new changes, the GSE regulator expects many more lenders will seek out underwater borrowers for refinance opportunities. (Prior to the new changes the LTV cap was 125%. Now it is unlimited.)
"The rep and warrant changes will increase competition for making HARP refinances. That is an important and beneficial element of the changes that we have made," said FHFA director Ed DeMarco.
For borrowers who refinance into shorter-term mortgages of 20 years or less, all risk-based origination fees will be waived.
Others who refinance into 30-year mortgages will pay some fees. "We are still examining the fee schedule," DeMarco said. However, it will be lower than the current risk-based fees.
For borrowers who refinance into shorter term mortgages of 20 years or less, all risk-based originations fees will be waived.
Fannie Mae and Freddie Mac will issue operational details about the HARP changes to lenders and servicers by November 15, the GSE regulator said.
Since early summer the Obama administration has pushed for an expanded HARP program that would allow more underwater borrowers to refinance and reduce their mortgage payments, which would give a boost to the overall economy and reduce foreclosures.
However, the FHFA acting director has structured the refinancing program to incentivize refinancings into shorter-term loans that reduce the time it takes for borrowers to increase equity, and reduce the GSEs' credit risk.
The acting FHFA director noted that refinancing into a 30-year mortgage means the homeowner will be underwater for an additional three to five years, which presents more risks for Fannie and Freddie.
New appraisals will be waived on these refis as well, according to a FHFA term sheet.
