New mortgage refinancing programs grow to reach more homeowners

Frédéric J. Brown | AFP | Getty Images

For Stacey Foley, refinancing her mortgage was a no-brainer.

After paying around 4.25% interest on his existing home loan, refinancing to 3.25% with limited closing costs saved him $ 200 per month.

“Two hundred dollars doesn’t sound like a lot of money, but over a year it is,” Foley said.

The North Carolina resident was able to qualify with online mortgage lender Better.com through a new government refinancing initiative called RefiNow. It targets low to moderate income borrowers who may otherwise have difficulty obtaining competitive loan terms.

Started in June by Fannie Mae, the program recently increased the income limit for qualifying and relaxed some other requirements to make it easier for borrowers to participate. Freddie Mac also offers a similar initiative, called RefiPossible. (Fannie and Freddie are government sponsored, publicly traded companies that buy and sell mortgages.)

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The changes “expand the population that can qualify and make transactions less frictional,” said Mike D’Ambrosio, director of credit risk at Better.com.

With rates hitting historic lows in 2020, refinancing activity hit about $ 2.6 trillion last year, according to Freddie Mac. This is the highest annual total since 2003, when $ 3.9 trillion in refinancing was recorded.

Mortgage rates remain modest: the average rate for a 30-year fixed mortgage is 2.78%, according to the real estate website Zillow. For comparison: in 2018, the average was 4.54%, according to Freddie Mac. In 2008, it was 6.03%.

Despite the general refinancing boom last year, there has been a decline in activity among homeowners with incomes below the median income in their area, said Sandra Thompson, acting director of the Federal Housing Finance Agency, at a Mortgage Bankers Association convention in October.

“These borrowers risk being left out in a generational opportunity to lock in more sustainable monthly payments,” Thompson said in his remarks. “And these are often the people who could benefit the most from extra wiggle room in their budgets.”

She also said in her speech that adoption of the two refi programs has been slower among some larger lenders. The new changes incorporate some of the comments received on how the programs could be changed to be more effective.

To be eligible for RefiNow, borrowers must first have a Fannie Mae back-to-back mortgage for their home, in which they are to live.

Households whose incomes do not exceed the median income for their region are generally eligible if they can meet other conditions. When the program was first launched, the income cap was 80% of this local median amount. (Freddie Mac’s initiative will increase the limit in January and incorporate other announced changes.)

The ReFiNow program also eliminated the requirement that the loan could not be longer than 10 years. A cap on closing costs has also been removed, and the reduction in payments can be any amount instead of a minimum. However, lenders must offer a rate cut of at least 50 basis points (half a percentage point).

Additionally, borrowers who resolved missed payments due to Covid-related forbearance may now be eligible. Originally, no claimant was allowed to default in the previous six months and no more than one in the previous 12 months.

Additionally, borrowers must have a debt-to-income ratio of less than 65% and a FICO credit score of at least 620.

Homeowners can contact any mortgage company they wish to explore for refinancing through either program. While lenders are not required to participate, many are.

If you are unsure whether your loan belongs to Fannie Mae, you can use the loan finder. To check if it belongs to Freddie Mac, a separate online search tool is available.


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