Q&A: HOME AFFORDABLE REFINANCE PROGRAM

Q 29. What is the Home Affordable Refinance program?

A The Obama Administration aims to help 4 to 5 million homeowners who are unable to refinance due to falling home values. The new program will help owner-occupied borrowers with conforming Fannie Mae or Freddie Mac loans to refinance up to 105 percent of the current market value of their properties.

Q 30. What is the purpose of the Home Affordable Refinance program?

A The purpose of the Home Affordable Refinance program is to help homeowners who are unable to take advantage of lower interest rates because of falling property values.

As background, a homeowner seeking to refinance is generally limited to a loan amount of not more than 80 percent of the appraised value. Yet, during the housing market downturn of the late 2000s, home values have dropped. As a result, many homeowners are unable to refinance to take advantage of historically low mortgage rates.

As an example, consider a couple who purchased a home a few years ago for $260,000. They took out a $208,000 mortgage loan at 6.5% for 30 years. Today, they owe $200,000 on the loan. However, if the home values in their neighborhood have dropped 15%, their property may currently only be worth $221,000. If a lender requires an 80% loan-to-value ratio for a refinance, the borrowers could only finance $176,800, even though they owe $200,000. Yet, if the couple could avail themselves of the current going interest rate of, let’s say, 5 percent, they could save roughly $2,400 per year in mortgage payments.

Q 31. When does the Home Affordable Refinance program take effect?

A Fannie Mae and Freddie Mac are issuing guidelines to originating lenders that will allow them to begin offering the Home Affordable Refinance immediately. The Home Affordable Refinance will sunset on December 31, 2012.

Q 32. What are the eligibility requirements for a Home Affordable Refinance?

A The eligibility requirements for a Home Affordable Refinance is as follows:

• Current loan is owned or guaranteed by Fannie Mae or Freddie Mac (see Questions 33 to 35);
• Owner occupied, one-to-four unit home;
• Maximum refinance loan amount is 105% of the current market value of the property;
• Borrower must have sufficient income to support the new mortgage debt; and
• Borrower must have an acceptable mortgage payment history.

Q 33. Which loans qualify for a Home Affordable Refinance?

A The Home Affordable Refinance is available for first trust deed loans owned or guaranteed by Fannie Mae or Freddie Mac. This includes loans that Fannie Mae and Freddie Mac hold in their portfolios or that they placed in mortgage-back securities.

The principal balance of the existing loan cannot exceed 105% of the current market value of the property. For example, a borrower who owes $210,000 on a mortgage loan that has been sold in the secondary market to Fannie Mae would qualify under the refinance program, even though the property is currently worth only $200,000.

Q 34. How do homeowners determine whether they qualify for a Home Affordable Refinance? A A self-assessment tool is available for homeowners to determine whether they are eligible for a Home Affordable Refinance or Modification at http://www.financialstability.gov/makinghomeaffordable/.

Q 35. How does a REALTOR® or borrower determine whether a loan is owned or guaranteed by Fannie Mae or Freddie Mac?

A Both Fannie Mae and Freddie Mac have established toll-free telephone numbers and web access to make this information available. Borrowers will provide or enter information to determine if either agency owns or securitized the loan. The information, however, is not a guarantee of eligibility for the Home Affordable Refinance.

For Fannie Mae’s Resource Center, the telephone number is 1-800-7FANNIE or 1 800 732 6643 (8 a.m. to 8 p.m. EST) or inquire online at www.fanniemae.com/homepath/homeaffordable.jhtml.

For Freddie Mac, the telephone number is 1-800-FREDDIE or 1-800 373 3343 (8 a.m. to 8 p.m. EST) or inquire online at www.freddiemac.com/corporate/buyown/english/avoiding_foreclosure/avoiding_foreclosure_form.html.
Alternatively, a borrower may contact the lender or loan servicer to inquire as to whether the underlying loan is owned or guaranteed by Fannie Mae or Freddie Mac.

To provide some background, a mortgage loan is typically funded with a financial institution and then sold in the secondary market to government-sponsored enterprises Fannie Mae or Freddie Mac. Oftentimes, the financial institution continues to collect the monthly mortgage payments and service the loan, which is why the borrower may not be aware that the loan has been sold to Fannie Mae or Freddie Mac.

Q 36. Are loans other than Fannie Mae or Freddie Mac loans also eligible for a Home Affordable Refinance?

A No. A Home Affordable Refinance is only available for conforming loans owned or securitized by Fannie Mae and Freddie Mac. However, loans not owned or securitized by Fannie Mae or Freddie Mac may qualify for a Home Affordable Modification (see Question 42).

Q 37. Can a borrower with both a first and second trust deed obtain a Home Affordable Refinance?

A Yes. A borrower with more than one mortgage loan can refinance the first trust deed if the principal balance is less than 105% of the current property value. However, the borrower must obtain an approval from the second trust deed lender to subordinate or remain in a second position.

Q 38. What are the terms of a Home Affordable Refinance loan?

A A loan refinanced under the Home Affordable Refinance program will be a fixed rate loan for 15 or 30 years. The interest rate will be based on market rates at the time of the refinance and associated points and fees. The refinance loans will have no prepayment penalties or balloon payments.

The principal balance of a mortgage loan will not be reduced under the Home Affordable Refinance program. The objective of the new refinance program is to provide borrowers with safe and affordable mortgage loans.

Q 39. Can a borrower who is currently delinquent qualify for a Home Affordable Refinance?

A No. Borrowers currently delinquent on their mortgage loans will not qualify for a Home Affordable Refinance. Borrowers must be current on their mortgage payments, meaning they have not been more than 30-days late in the last 12 months.

Q 40. Can a borrower take cash out in a Home Affordable Refinance?

A No. Only the transaction costs may be added to the loan amount of a Home Affordable Refinance.