There is a great misconception that there are no options for struggling homeowners. The reality is that major players in the mortgage lending market, specifically Fannie Mae, Freddie Mac and HUD (The Department of Housing and Urban Development), would like to avoid foreclosures whenever possible. As a result, they have created loan programs designed with this end in mind.
Fannie Mae Refi Plus
Current market conditions have created an environment where homeowners who previously put 20% or more down could face loan denial and/or mortgage insurance requirements. In addition, the uppermost limit in even flexible programs is capped between 95% and 96.5%. So many homeowners are stuck between a rock and a hard place. They are undoubtedly paying too much, but, due to a depressed housing market, they are outside of loan approval guidelines. Even if they are below generally accepted requirements and a refinance could lower the rate, a transaction would actually add cost to the homeowner.
The Fannie Mae Refi Plus Program, which is available from most Fannie Mae affiliated lenders, allows a homeowner to refinance an existing Fannie Mae loan at up to 125% of a property’s appraised value without the burden of private mortgage insurance and an added layer of underwriting. Although requiring adherence to all other guidelines, such as credit score, assets holdings and income, this option allows borrowers who are seemingly underwater on their mortgages to stabilize their housing expense.
Freddie Mac Open Access
Fannie Mae and Freddie Mac typically mirror one another in mortgage loan program offerings. Though not always exact matches, Freddie Mac’s programs do match the intent of their larger counterpart. In this line of thinking, Freddie Mac offers the Open Access Loan Program. Like Refi Plus from Fannie Mae, Open Access allows homeowners with existing Freddie Mac held loans to refinanced at higher loan-to-value without the burden of mortgage insurance. This program is available from any Freddie Mac affiliated lender.
FHA Streamlined Refinance
Since HUD backs many loans in the marketplace, they too have needed to develop mechanisms to assist struggling homeowners. They most notable of these is the FHA Streamlined Refinance. Although not as dynamic as the Fannie Mae and Freddie Mac programs, this program allows homeowners to refinance their loan under FHA guidelines without an appraisal, which alleviates a major obstacle preventing refinances from making it to the closing table. In addition, the program does not require the borrower documentation required for most deals. While they must provide proof of employment, homeowners need not provide bank statements, tax returns and other documentation generally associated with a loan transaction. In many cases, a prospective borrower can make it from application to close in half the time of other refinances.
The First Step
As with any loan transaction, the first step begins with the homeowner. The problem is that many have been cowed into inaction by reports in the media that nothing can be done and that the anemic housing market presents an insurmountable impediment to securing a better rate and more secure financial future. In this case, however, the worst course of action is inaction. Only by picking up the phone and reaching out to a lender or lenders can you know what options are available and all it costs you is your time.