New York – The regulator of Fannie Mae and Freddie Mac unveiled on Thursday a program aimed at homeowners who are paying their mortgages on time but whose loan-to-value (LTV) ratios are too high to qualify for traditional refinance programs.
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To be eligible for this program, which Fannie and Freddie will implement, borrowers must have not missed any mortgage payments in the prior six months; must not have skipped more than one payment in the previous 12 months; must have a source of income and must receive a benefit from the refinance such as a reduction in their monthly loan payment, the Federal Housing Finance Agency said.
“This new offering will give borrowers the opportunity to refinance when rates are low, making their mortgages more affordable and thus reducing credit risk exposure for Fannie Mae and Freddie Mac,” said FHFA Director Melvin Watt in a statement.
Because this program for high LTV borrowers will not be available until October 2017, the agency said it will extend the Home Affordable Refinance Program (HARP) until Sept. 30, 2017 as a bridge to the new high LTV program.
HARP was introduced in 2009 to help underwater borrowers following the housing bust. More than 3.4 million homeowners have refinanced their mortgage through the program.
More than 300,000 homeowners could still refinance through HARP, FHFA said.
Borrowers with existing HARP loans are not eligible for the new offering unless they have refinanced out of HARP using one of the traditional refinance products offered by Fannie and Freddie, FHFA said.
In contrast to HARP, there are no eligibility cut-off dates connected with the new high LTV program, and homeowners will be able to use it more than once to refinance their mortgage, it said.
It was unclear how many homeowners would be eligible for this new loan program.
“The population of borrowers eligible for this new program is very small – it’s essentially a subset of the current HARP population,” J.P. Morgan analysts wrote in a research note. “More likely, FHFA’s goal is simply to have a program in place in the event of another housing downturn or financial crisis.”