The Federal Housing Finance Agency (FHFA) [1] has announced that both Fannie Mae and Freddie Mac (the government-sponsored enterprises) will offer a new refinance option [2] for low-income borrowers with GSE-backed single-family mortgages. FHFA notes that borrowers who are eligible for the new option will benefit from a reduced interest rate and lower monthly payment, saving an average of $100-$250 per month.
The GSEs plan to work with their respective lenders to make this option available to eligible borrowers as soon as possible.
“Last year saw a spike in refinances, but more than two million low-income families did not take advantage of the record-low mortgage rates [3] by refinancing,” said FHFA Director Mark Calabria [4]. “This new refinance option is designed to help eligible borrowers who have not already refinanced save between $1,200 and $3,000 a year on their mortgage payment.”
Options of the new refi plan include:
- A requirement that the lender provides a savings of at least $50 in the borrower’s monthly mortgage payment, and at least a 50-basis point reduction in the borrower’s interest rate;
- A maximum $500 credit from the lender for an appraisal if the borrower is not eligible for an appraisal waiver (the GSEs will provide the lender a credit of $500 upon the loan’s sale to a GSE); and
- A waiver of the 50-basis point upfront adverse market refi fee for borrowers with loan balances at or below $300,000.
“Racial and income disparities in refinance take-up rates have persisted for far too long,” said Sheila C. Bair [5], Chairwoman of the Board for Fannie Mae. “With this initiative, we strive to narrow the gap. We thank FHFA for its strong leadership to help all eligible homeowners reduce their monthly housing costs by taking advantage of the historically-low mortgage interest rates.”
In order to qualify for the new refi option, a borrower must:
- Have a GSE-backed, one-unit, single-family mortgage that is owner-occupied;
- Have an income at or below 80% of the area median income;
- Have not missed a payment in the past six months, and no more than one missed payment in the past 12 months; and
- Not have a mortgage with a loan-to-value (LTV) ratio greater than 97%, a debt-to-income (DTI) ratio above 65%, or a FICO score lower than 620.
“Millions of homeowners have benefited from refinancing to reduce their monthly mortgage payment and build long-term wealth,” said Donna Corley [6], EVP and Head of Single-Family Business at Freddie Mac. “Our goal is to expand access to credit responsibly and make sure we are supporting sustainable homeownership.”