FHFA: GSEs Don't Need New Authority For Obama Refinance Plan
21 February 2009 - 5:58AM
Dow Jones News
Fannie Mae (FNM) and Freddie Mac (FRE) won't need congressional
approval to assist with an Obama administration initiative to
refinance millions of borrowers who owe more than 80% of the value
of their homes, the mortgage lenders' regulator said Friday.
Such assistance "would be a proper exercise of their existing
authorities," the Federal Housing Finance Agency said in a
statement.
The charters for Fannie and Freddie expressly prohibit them from
guaranteeing or buying mortgages with loan-to-value ratios above
80% unless the borrower has mortgage insurance or the loan
originator retains 10% of the risk.
But the Obama housing plan contemplates allowing borrowers with
mortgages above the 80% loan-to-value threshold to refinance into
another loan backed by Fannie or Freddie without purchasing
mortgage insurance.
In a letter to a private-mortgage insurance industry executive,
FHFA Director James B. Lockhart argued that the program would be
permissible under the each firm's government charter because it
doesn't increase their risk.
"In fact, credit risk would be reduced because, after the
refinance, the borrower would have a lower monthly payment and/or a
more stable mortgage payment," Lockhart wrote in the letter to
Mortgage Insurance Companies of America Executive Vice President
Suzanne Hutchinson. The letter was released by FHFA.
The administration's goal is to allow homeowners who have seen
their home value plummet to take advantage of low mortgage rates
without paying mortgage insurance premiums.
Mortgages with loan-to-value ratios of up to 105% would be
eligible under the program, which the administration estimates
would help 4 million to 5 million people to refinance. -Jessica
Holzer, Dow Jones Newswires; 202-862-9228;
jessica.holzer@dowjones.com
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