Mortgage Refinances to 125 Percent Loan-To-Value Ratio Start Today
That didn't take long. The Federal Housing Finance Agency (FHFA) issued a quiet press release today announcing that Fannie Mae and Freddie Mac would now accept refinancing with 125 percent loan-to-value ratios.
So if your house is worth $100,000, but you owe $125,000, and your loan is owned or guaranteed by Fannie Mae or Freddie Mac, you'll be able to refinance your mortgage to what is hopefully a lower interest rate.
Today's announcement comes in the wake of the Washington, D.C. meeting of the National Association of Real Estate Editors, during which HUD Secretary Shaun Donovan was asked what FHFA was planning to do now that home prices have fallen so much that millions of homeowners no longer qualified to refinance their mortgages under the President Obama's Making Home Affordable Plan. He told me that discussions were underway about the issue and the home loan-to-value ratio being talked about was 125 percent.
Home values have been slammed in this housing and credit crisis. Home values dropped again last month and economists believe home values will sink an average of 40 percent before turning the corner. It has become clear that not enough homeowners can refinance because the loan-to-value ratio of 105 percent was too low.
FHFA Director James Lockhart said that the 125 percent loan-to-value ratio would allow more people to refinance. The program is also trying to sell homeowners on the idea that they should look into loans with shorter loan terms, such as a 15-year, 20-year, or 25-year term rather than another 30-year mortgage. Not only will the interest rate be less than for a 30-year loan, but homeowners will get rightside up on their loans faster.
Unfortunately, today's press release doesn't discuss how lenders are going to increase their capacity to deal with the massive wave of refinancings and loan modifications, or how the federal government is going to buy enough bonds to get the mortgage interest rate below 5 percent again to stimulate the housing market. And, we still don't know whether HUD will work with Treasury to either extend the $8,000 first-time home buyer tax credit, or perhaps adopt Sen. Johnny Isakson's idea for a $15,000 federal tax credit that is available to all home buyers, regardless of income.
Then again, it's a holiday week.
Read More:
Want to Refinance Your Loan? Home Loan-to-Value Ratio May Climb to 125 Percent
Can't Refinance Under Making Home Affordable? Try This
HUD Secretary Shaun Donovan Says Maybe to $15,000 Home Buyer Tax Credit
