FHFA Authorizes Fannie and Freddie 125% LTV Refinances

Real Estate Broker/Owner

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. 

Comments (32)

Aaron Catt | Boise Real Estate Soup

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?

Jul 01, 2009 09:14 AM
Doug Loveridge
Lake Oswego, OR

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.

Jul 01, 2009 12:29 PM
Roy Paeth
Keller Williams Inspire - Geneva, IL
Just a regular guy helping real people!

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.

Jul 01, 2009 03:16 PM
. .
Adak, AK

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

Jul 01, 2009 03:38 PM
Christine Donovan
Donovan Blatt Realty - Costa Mesa, CA
Broker/Attorney 714-319-9751 DRE01267479 - Costa M

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 01, 2009 04:39 PM
Donald Blakeley, Jr.

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......

Jul 02, 2009 02:19 AM
Dan Magstadt
Paramount Residential Mortgage Group, Inc - Lake City, FL

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.

Jul 02, 2009 02:33 AM
Dorit Katz

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.

Jul 02, 2009 02:36 AM
Lyn Sims
RE/MAX Suburban - Schaumburg, IL
Schaumburg Real Estate

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!

Jul 02, 2009 03:03 AM
Natalie Langford
Realty Negotiations - Winchester, VA
Winchester, VA Real Estate

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!

Jul 02, 2009 03:37 AM
Angie G

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.



Jul 02, 2009 04:29 AM
Vivette Abel-Montas
Northeast Signature Properties - Piscataway, NJ

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?

Jul 02, 2009 05:20 AM
Mark MacKenzie
Phoenix, AZ

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. 

Jul 02, 2009 05:42 AM
Mark MacKenzie
Phoenix, AZ

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.

Jul 02, 2009 05:43 AM
Gene Riemenschneider
Home Point Real Estate - Brentwood, CA
Turning Houses into Homes

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.

Jul 02, 2009 09:02 AM
John McConnin
McConnin & Company Realty - San Diego, CA


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.

Jul 02, 2009 09:36 AM
Al Dobbs
ADD Real Estate - North Chicago, IL

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.

Jul 02, 2009 03:03 PM
Andrew Haslett
Van Warren Home Inspections, NAHI CRI - Fort Knox, KY
Heartland of Kentuckynulls, Best Home Inspector

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.

Jul 02, 2009 03:19 PM
Mark MacKenzie
Phoenix, AZ

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.


Jul 02, 2009 04:27 PM

Why is this offer for only Fannie and Freddie??? Why is FHA or GNMA being excluded here? I am at 111% LTV and cannot refi because I have been responsible and made my payments on time despite being at 31% housing debt to income. Why do only Fannie and Freddie get help? This is an outrage!

May 17, 2010 02:00 AM