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Robert Nusgart: Fannie, Freddie tweaks don’t go far enough

In the midst of another mini-refinance boom (thanks to the Greek government — again), Fannie Mae and Freddie Mac have announced that they have extended their Home Affordable Refinance Program through the end of 2013.

Those good souls at the two mortgage giants, which essentially dictate mortgage underwriting guidelines and are both in receivership under the federal government, have tweaked the program that allows underwater homeowners to refinance their homes to today’s lower rates. The new guidelines are expected to be released Nov. 15.

But as usual, they fluffed the pillows, but forgot to turn the mattress. Simply, they did enhance the program to allow more people to be eligible, but missed on some key points that would have helped even more people.

First, what they did correct.

The program was to expire in June 2012, but now will run through Dec. 31, 2013.

Next, the maximum loan to value could not exceed 125 percent under the current program. For example, if your mortgage was for $125,000 and the home’s value was $100,000, then you qualified, per Fannie and Freddie. However, a number of banks and lenders put on their own overlays, figuring 125 percent loan to value was too risky, and would only go as high as 105 percent. The lenders didn’t want to risk having a home go into foreclosure and having Fannie or Freddie possibly toss that loan back onto their ledger.

Now, Fannie and Freddie have taken off the 125 percent limit so if you are 100 percent underwater, you’re eligible. In fact, they won’t even ask for an appraisal as long as the property in question passes a reasonable Automated Valuation Model, known as an AVM. And to put banks and lenders at ease, Fannie and Freddie have waived many warrants and restrictions that would have put banks at risk otherwise. Therefore, if you weren’t able to refinance before because your home was way too underwater, try again.

Borrowers still must be current on their mortgage payments with no late payments in the past six months and not more than one late payment in the past 12 months.

HARP refinances are available for single-family dwellings and condos as well as owner-occupied second homes and investment properties.

Now, what they messed up.

If your loan was sold or guaranteed to Fannie or Freddie by May 31, 2009, then you are eligible. However, it is a shame to exclude someone who purchased a home in the spring of 2009, settled in June, put down 20 percent and still saw their home value decline as 2009 turned into 2010 and values continued to drift lower.

Yes, everything in the mortgage business today is based on risk. That’s why Fannie and Freddie took the handcuffs off the 125 percent value limit. “Hey, we own or guarantee the loan anyway. Who cares what the value is? If it’s going to go in the Dumpster, it’s going to go into the Dumpster anyway.”

But this program is targeted toward borrowers who are making payments, who haven’t missed. They are good risks. Why not open up the program to those who have a Fannie- or Freddie-backed mortgage originated through June 2010?

Allow some of those people who may have lost some equity to reap the benefits of rates that are most likely lower than when they settled on their home. Perhaps just limit it strictly to home purchases that settled between June 1, 2009, and June 1, 2010.

So here is a plea to Fannie and Freddie: Get with the program and allow more people to participate in these record low interest rates. You still own the loan, the risk is still there, but you can help a homeowner save hundreds of dollars a year in lower finance charges.

To find out if your loan is owned by Fannie Mae, click here. For Freddie Mac, click here.

Robert Nusgart is a loan officer with Mortgage Master Inc., which is associated with The Strata Group in Baltimore. He can be reached at 443-632-0858 or by email at rnusgart@mortgagemasterinc.com. Visit his website at www.RobertNusgart.com for the latest mortgage and financial news.