2nd UPDATE: Obama Administration To Expand Its Foreclosure Prevention Effort
02 July 2009 - 5:13AM
Dow Jones News
The Obama administration on Wednesday moved to allow more
underwater borrowers to take advantage of lower interest rates
under its program to combat the foreclosure crisis.
Strapped borrowers with mortgages worth up to 125% of their
home's value will now be eligible to refinance under the program,
as long as they are not behind on their payments. Currently, the
program caps eligibility at a loan-to-value ratio of 105%.
In addition, mortgage finance companies Fannie Mae (FNM) and
Freddie Mac (FRE) said they would offer incentives to lenders to
encourage certain underwater borrowers with 30-year fixed-rate
mortgages to refinance into shorter-term loans.
Department of Housing and Urban Development Secretary Shaun
Donovan announced the new higher loan-to-value limit while touring
a foreclosure-ridden neighborhood of Las Vegas, Nev. with Senate
Majority Leader Harry Reid, D-Nev., and Rep. Dina Titus, D-Nev.
The move is aimed at helping homeowners who have been unable to
refinance into lower-rate mortgages because their homes have
plummeted in value. But the effort could be hampered by rising
mortgage rates.
"By expanding refinance eligibility, we can bring relief to more
struggling homeowners more quickly. It's a crucial step in our
broader efforts to get America's housing market and economy on the
path to recovery," Treasury Secretary Timothy Geithner said in a
statement.
Fannie Mae said it would offer a 0.50% price reduction on
charges to lenders for loans with a loan-to-value ratio above 105%
and terms of 20 and 25 years.
Freddie Mac said it would limit unspecified special pricing to
25-year loans that are refinanced through the administration's
program. The mortgages must also have a loan-to-value ratios
between 105% and 125%, the company said.
In a statement, the companies' regulator, Federal Housing
Finance Director James B. Lockhart, said borrowers who switch to
shorter-term loans would be able to rebuild equity in their homes
more quickly. Borrowers who qualify for such loans would save
interest costs over the life of the mortgage, but would also see
their monthly payments increase.
The refinancing program is a prong of the administration's
effort to help borrowers stay in their homes. The program targets
underwater borrowers with mortgages backed by Fannie and Freddie.
Meanwhile, a separate program of borrower and lender incentives is
aimed at helping homeowners who are behind on their payments or at
risk of default.
Fannie and Freddie normally require mortgage insurance for loans
greater than 80% of the home's value. But under the refinancing
program, borrowers with mortgages worth 80% to 125% of their home's
value can refinance without having getting mortgage insurance or
purchasing additional coverage.
In a speech last month, James B. Lockhart, the regulator for
Fannie Mae and Freddie Mac, said that 80,000 people had already
refinanced under the program.
However, rising rates could hamper the program's reach.
Refinancing volume has dropped off sharply since April, when the
average rate on a 30-year fixed-rate mortgage hit 4.78%, according
to Freddie Mac (FRE)'s weekly survey of its lenders. The average
rate on a 30-year mortgage was 5.42% last week.
Fannie Mae said it would begin accepting for delivery the
expanded loan-to-value mortgages on Sept. 1.
Freddie Mac said it would begin immediately accepting the higher
LTV mortgages for borrowers refinancing through their current
servicer. For borrowers applying through a Freddie Mac-affiliated
lender, the higher caps would become available Oct. 1.
-By Jessica Holzer, Dow Jones Newswires; 202-862-9228;
jessica.holzer@dowjones.com