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FHFA Authorizes Fannie and Freddie 125% LTV Refinances

In the latest sign that Washington has been behind the curve on this housing crisis, the FHFA announced today that they are finally changing their original refinance blueprint (Home Affordable Refinance Program, HARP) and are now authorizing Fannie Mae and Freddie Mac to include refinance LTV's of up to 125%, up from the 105% that the original plan had been based on.

This action is a result of the plan's initial failure in recognizing just how many homes are actually underwater and were unable to qualify for the 105% LTV.

According to Moody's, there is an estimated 15.4 million homes that are worth less than what is owed.

This number is only going to continue to grow as a result of the ongoing supply and demand imbalance for real estate.

It is these types of economic lapses by the Obama administration that continue to be a drag on the housing market and broader economy. Washington simply does not understand the gravity of the situation. From the banking system, to the housing market, to the economy and the "stimulus" package, the Obama administration continues to undershoot.

Posted by Mark MacKenzie on 07/01/2009 01:19 PM

Comments (31)

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31 Comments on FHFA Authorizes Fannie and Freddie 125% LTV Refinances

JUL

That's a start. Question is, why does there have to be a limit at all. Are folks who are upside down more than 25%, which is millions, somehow less in need or deserving of help????

I think this is just the beginning of what we are going to see in the next couple months!! The housing market is not a simple fix that is for sure.

Thanks for the info

Nicely said, and to say that Obama and the Dems, and all of the other politicians for that matter don't have a handle on the gravity of the situation is at best an understatement. Of course, how can they. They live in there sheltered life, paying their mortgages with money they just appropriate or pass pay raises for them selves.They pay for their life by money they take from us. How can they possibly know what we know, as every day we see our very future vanish into thin air. Or better said, vanish into the failed policies and practices of our leaders. I can tell you for one, I don't like the road they are leading us down

Oh my... 125% LTV... this is NOT a good thing at all for the homeowner when they decide to sell.

I understand Rolands comment, I guess it means they will be still stuck in theor homes until the market rebounds but will now be able to make a more affordable payment as opposed to going into foreclosure

Lenn: A very good point. Considering home values have fallen by over 50% in places like Phoenix, Las Vegas, and markets in CA and FL.

Brock: I agree it is not a simple fix, but Washington has an amazing ability to make things more difficult than they have to be.

Randy: Indeed, I agree with you about all politicians. The Bush administration was very slow to act on any meaningful housing policies as well.

Roland: Keep in mind that many homeowners already owe 25% more than what the home is worth. This is not for purchases.

Bridget: Agreed. It is six of one and half a dozen of another.

Mark

Good information, but I have as yet to know of any lenders who are incorporating this change. Not sure how new this is, but am certain it will take awhile to go into effect.

Thor Funding: This was just announced today by the FHFA.

Mark - It is amazing how far behind the govt is.... playing catch-up is not the best position to be in. At least these sorts of initiatives are a start ! Thanks for the info !

This is a good thing for my area where many of the underwater homeowners fall into this category. 105% didn't work in my area, but this will.

I agree with Lenn. If you're underwater, you're underwater but if you are one of the few homeowners that are continuing to pay ontime even though you're upside down then they too should be rewarded with being able to refinance into something more affordable. The government needs to just do away with limitations and exclusions. I dont recall them applying that same concept to the banks that got us in this mess in the first place! Practiclly everybody in the world were able to get a house 3-5 years ago (whether they qualified or not) so why pick and choose who gets assistance now? Sorry just my 2 cents.

There are more home owners that DO pay their mortgage on time . . . it's not just 'a few' . . . if it were TRULY 'a few' we'd see it a lot more uproar. Granted, some areas in the nation are harder hit, they also had the easier loans to obtain, and their local economies weren't all that good 3-5 years ago, to begin with. And if it was up to Zillow and their Zestimates, homeowners would not only be underwater, they'd be drowned.

Interesting information. My jury is still out on this as to whether or not it will help in my area. Most people that I know who are having issues are struggling with the month to month affordability, which is why in many cases the 'loan mods' that banks are offering stabilize the loan but do little to address affordable payments.

I suppose that being able to refinance into a more 'fixed' and lower interest rate could help. Are there any other important points that I'm missing?

I too am very curious what bank out there will even touch this program. My guess not very many if any at all. We'll just wait and see.

I think this will come a bit late as many homes have fallen past the 125%. Hopefully this will be able to help some homeowner lower their payments and stay in their homes.

This is one of those bittersweet news stories. On one side it is good for those who want to stay in their over leveraged home to have a chance of being able to do that, and so keeping another foreclosure off the market.

The down side reflects the severity of the housing problem nationwide. And I can't help but think how similar this solution is to the very start of the problem itself, people buying homes expecting increasing values to make economic sense of it.

Call me skeptical but I don't think we will see many 125% refinancing, not enough to move housing in the right direction.

Kent Davis

I'm glad to hear that the government has amended this. With a 40% drop here in Orange County, many just haven't qualified for the new refi programs.

JUL

This will be the next housing debacle forced on us by Congress. These guys don't have a clue. reminds me of the Boy Scout forcing the elderly person to cross the street......

This should help out a lot of homeowners - I just hope it's not like the other programs they've created in the past (FHA Secure) that sound good, but in reality, most people don't qualify & they end up helping very few people.

Does gov't have blinders on. Why wouldn't this mean the same over borrowing mess we are already in? Wouldn't this mean that when the homeowner gets into mortgage trouble or wants to sell, the country will have to contend with many more short sales or foreclosures? From my understanding, in the default world, an estimated 75% of those who are modifying their loans are/will default again. This would concern me.

Your so kind to call it a 'lapse'. Supply & demand imbalance - ya think? It's always too late by the time the government decides to 'help'. So far, none of their 'help' has worked. We need a new definition of that word I think - let's call Websters!

We put 22% down on our home and we're still way under right now, possibly hovering at the 119 mark...Glad it finally covers us. Funny thing is, the lenders are not ready to refinance...Called BOA yesterday and it may be middle to the end of July before they're ready...And when your LTV is at 119, the rates are not that great...Not sure it'll help anyone!

The Ds have it right - Doug, Donald and Dorit - this is NOT GOOD!

You cannot borrow to get out of debt!!!

For how many years does our government have to fail at borrowing to get out of debt before ANYONE realizes this???

This problem is so systemic that each of us MUST take responsibility to correct what we've done and demand that our government find some other way besides leading the way to more borrowing and taking care of those who should be taking care of themselves.

You want the government to have a program, here it is:

Make every dollar we put into our mortgage tax deductible. YES!!! Give us benefits to doing the RIGHT thing. Finance changing these ridiculously palatial homes into multiunits with zero interest loans so that we can have a serious discussion about AFFORDABLE SAFE HOUSING...and don't forget BETTER EDUCATION OPPORTUNITIES for those who have been stuck in the inner cities because it's the only place they can afford.

If you want to help out these upside-down homeowners, teach them how to create a CBRF in their home. They can have up to 4 boarders before they have to pay any income tax!!!

You and your distressed homeowners will know you're doing it the right way when three things happen:

1. You're uncomfortable with the change in thinking and then in doing;

2. You're helping out people;

3. They've kept their home.

Be kind, be wise, be creative.

Love,

Angie

What is the solution. I started in this business at the start of the downturn and I have been given the impression that numerous professionals do not think this business is cyclical. Since this is an unusual downturn, who has the answers?

Angie: I agree with you about not borrowing to get out of debt. What this program allows is for under-water homeowners to qualify for a refinance so that they are paying less on their debt which will in turn lower their debt moving forward. They are not taking on new debt.

If a homeowner owes 187.5K but the property is only worth 150K, the homeowner will be able to refinance their 187.5K of debt to a lower rate.

Vivette: I am not opposed to this solution. it is helping under-water homeowners decrease their mortgage payments. It is not creating new debt.

However that being said, the systemic risk to the housing market is that home values are still falling. Until this stops, the economic and banking crisis will go on. I wrote a book about my solution.

It will help people that want to stay in their home long term, if the market can level off and get back to some actual increase. I fear that they are just shuffling the issues around and putting off the pain.

While this is a great thing for my business. This is just another way of prolonging the misery.

This also shows that government is going to be betting on massive inflation.

The problem is that we may not see wage inflation, there housing values may not rise back to old levels.

On side note -

If you are in a state with non recourse mortgages - make sure you realize that doing a refi may lock in tax liablity should you ever have to walkaway or do a short sale.

You have to look at at from a state and federal tax liablity stand point.

It sounds good--but it doenst look like banks are doing much refi in this area. 125% wow I hope it will help turn the market around.

Mark, I've got a way to go in understanding this concept.

You noted this has to do with the Obama administration. Is it just the Obama administration, or our leaders in Washington (Congress and the Senate) and the previous administration, too. This is a complex situation; I can't imagine the current administration created it. Nor exacerbated it.

Andrew: Agreed. Bush was slow to identify what was going on in the housing market and economy and as things were hitting critical mass he already had one foot out the door. That being said, Obama has had plenty of time put an economic plan together and all we have seen is a back-loaded spending plan which does little to stimulate new and sustainable investment into our economy.

I'd like to see three things.

1.) Aggressive tax cuts for all tax brackets including small businesses. This would encourage businesses to be able to retain employees.

2.) Reduce the capital gains rate so as to stimulate investment.

3.) Reform or eliminate the Tax Reform Act of 1986 as it pertains to investment real estate passive loss and income limitations so as to provide an incentive for Americans to invest in American real estate and stop the erosion of property values.

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