Friday, March 13, 2009

Making Homes Affordable Plan Part II

A few days ago, I wrote the first of two parts on the Homeowner Affordability & Stability plan that was released by the Obama administration on Wed March 4th. As we know, it contains two major parts that will have an impact on assisting homeowners with a troubled mortgage situation. The first part of the plan is a modification program that Servicers will offer to borrowers with high debt-to-income ratios or who are at risk of foreclosure. The second part of the plan which I am blogging about today, is a refinance program for existing Fannie Mae or Freddie Mac loans.

1st Metropolitan Mortgage CEO, Daniel Jacobs and others are still assessing the details of the Homeowner Affordability & Stability plan to determine our next steps, but in the mean time we are trying to provide a summary of its major points so that it might help other to better understandable it.

So here we go:
The second part of the plan is a refinance program for existing Fannie Mae or Freddie Mac loans. Fannie Mae is offering two different programs:

  1. The Refi Plus Program that requires the servicer of the loan to be the originating lender.
  2. The DU Refi Plus Program (DU is the Automated Underwriting System for Fannie Mae) that allows any lender using DU to originate the loan as long as the existing loan is a Fannie Mae loan.

Freddie Mac requires the servicer of the loan to be the originating lender. Some specifics of the program are:

  • Existing mortgage must currently be a Fannie or Freddie loan.
  • Existing loan may not be considered ineligible (must get an Approved/Eligible from DU).
  • Ineligible loans include existing mortgage loans that received a DU Expanded approval (EA).
  • Maximum LTV for 1-2 unit properties is 105% and require an appraisal.
  • Maximum LTV for 3-4 unit properties is 80% and also require an appraisal.
  • No maximum CLTV.
  • Existing mortgage must be current and have acceptable mortgage payment history. No minimum FICO score is required although borrower must meet bankruptcy and foreclosure requirements. In addition, borrower must demonstrate credit worthiness.
  • Rate and term refinance only (No Cash Out) - purchase money seconds MAY Not be included.
  • Loan level price adjustments (points) will apply (determined by credit score on credit report)
  • MI required (same coverage factor of existing loan) for mortgage loans that had original LTV’s greater than 80%.
  • DU Refi Plus must receive Approve/Eligible and will not be available until April 4. Income and employment verification is required.
  • Refi Plus is a manual underwrite and requires verbal verification of employment. Lender must determine that the borrower has a reasonable ability to repay the mortgage based on current information provided by borrower.
There it is in a nut shell. I feel this part of the plan stands a chance to actually help those who have good credit and have little to no equity in their property. This offers a second option, to use FHA, which will allow a borrower to go to a 96.5% LTV on a No Cash Out Refi.