August 17, 2017 – The Federal Housing Finance Agency (FHFA) has announced some modifications to the High LTV Streamlined Refinance. The changes aim to support homeowners who have been making payments diligently but are constrained from refinancing their loans due to high LTV ratios.
Government-Sponsored Enterprises (GSEs), Fannie Mae and Freddie Mac, are scheduled to implement the High LTV Streamline Refinance Program starting October 1, 2017.
Loans under this new refinance program will be available for origination on this specified date moving forward. It is important to establish the eligibility date to perpetuate one of the GSEs programs, the Credit Risk Transfer (CRT) Program. The CRT structure will be modified so those future transactions can accommodate the High LTV Streamline Refinance Program.
These necessary changesapplied to the new refinance program should offer appropriate assistance to underwater homeowners while protecting taxpayers.
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FHFA Extends HARP Through 2018
The FHFA has also announced that it has directed Fannie Mae and Freddie Mac for a HARP extension (Home Affordable Refinance Program) through December 31, 2018. This program helps those homeowners who are having a hard time refinancing their mortgage due to having too little or zero home equities.
Over 3.4 million American families have refinanced their mortgages through HARP. This remains as one of the most successful refinancing programs there is post housing crisis.
How Does HARP Help Underwater Mortgages?
When a mortgage is underwater, it is almost impossible to get a refinancing loan. A borrower with little to no equity in their home can be a red flag to many lenders.
HARPoffers the possibility of a refinance to such borrowers. Refinancing through it can save you thousands of dollars through lower interest rates and more favorable loan terms.
On average, borrowers who had refinanced through HARP had saved over $250 a month on their mortgage payments.
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Why is the High LTV Streamlined Refinance a Lot Different?
HARP serves as a bridge program as FHFA slowly transitions to the High LTV Streamlined Refinance. This new program will look like HARP, but better. It mimics the some of the guidelines of HARP, with some major modifications:
- No late mortgage payments in the recent six months, No more than one late payment in the last 12 months.
- Must have a source of income
- The move to refinance must present a benefit. This may include lower interest rate, lower monthly payment, switching from an ARM to a Fixed-Rate Loan or shortening the loan term.
- There is no limit to how many times a borrower refinances through the new program, as long as qualifications are met.
The last guideline differentiates the new streamline refinance program from HARP. HARP can only be used once. With the High LTV Streamline Refinance, a homeowner can take advantage of it multiple times as long as they see it fit for their circumstance.
Isn’t This a Risky Venture?
Knowing that borrowers with High LTV ratios are considered ‘risky’, will it not be a risky endeavor for lenders to offer such a program?
The new High LTV Streamlined Refinance won’t just be forked over to any borrower seeking to refinance their mortgages. Just like the HARP, it is strictly for those who have demonstrated financial responsibility.
If these responsible but LTV-constrained borrowers will be able to save more money from their monthly mortgage payments, it is more likely that they can better afford it. That being said, it is easy to see how this can benefit not just underwater homeowners, but lenders as well.