Fannie Mae & Freddie Mac expand eligibility on home loan refinancing options

July 2, 2009 by · Leave a Comment
Filed under: Real Estate News 

Honestly I see what is trying to be accomplished with this expansion of the acceptable loan-to-value amount to 125% of the home’s value.  The goal of the program is to allow more people to refinance their home loan to a lower interest rate that will hopefully make it less likely the homeowner will default on the mortgage.

Instead, it is more likely going to set a “floor” in more home prices.  This is actually preventing the market from reflecting the actual value of all these homes that are being refinanced through this government sponsored loan program.  Yes, foreclosures are hard on the people being affected, there is no doubt in this.  But on the other side you have to think about the people who are striving to own their own home.  This in effect is artificially keeping prices higher than they would normally be without this intervention.  That is counter-productive in the way it punishes people who did not get an regular mortgage over these more exotic loans that had a huge rate hike baked in the formula.  Personally I would like to see less intervention and more market forces determining the outcomes of all these private contracts and agreements.

News (Reuters):

Mortgage finance companies Fannie Mae and Freddie Mac will expand efforts to prevent foreclosures by allowing refinancings by borrowers whose outstanding loans exceed the value of their homes by up to 25 percent, the Obama administration said on Wednesday.

Under current rules, the two government-controlled mortgage finance companies can only allow borrowers to refinance when their outstanding loan exceeds the value of their home by no more than 5 percent, known as a mortgage loan-to-value ratio of no greater than 105 percent.

The new policy, allowing a loan-to-value ratio of up to 125 percent, is intended to aid more struggling borrowers who have seen their property lose value in the recent years of a housing crisis.

“By expanding refinance eligibility, we can bring relief to more struggling homeowners more quickly,” Treasury Secretary Timothy Geithner said in a statement.

The collapse in housing prices has caused more and more homeowners to be “underwater,” with the money they owe on their mortgage outstripping the value of their home.

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