125% refinances allowed on troubled mortgages

July 1st, 2009, 1:03 pm · 12 Comments · posted by Mathew Padilla

Bloomberg reports that Fannie Mae and Freddie Mac will begin refinancing loans they own or guarantee up to 125% of the value of a property for some homeowners in financial difficulty. Here’s more:

Housing and Urban Development Secretary Shaun Donovan made the announcement in a statement today. Currently Fannie Mae or Freddie Mac, through President Barack Obama’s Home Affordable program, can refinance mortgages they own or guarantee when the loan is worth as much as 105 percent of the home’s market value.

The continuing slide in home prices has pushed millions of Americans beyond that 105 percent loan-to-value ratio, limiting participation in Obama’s initiative. Fannie Mae and Freddie Mac have refinanced 80,000 loans under that program, which set out to help as many as 5 million people who may owe more than their homes are worth, Federal Housing Finance Agency Director James Lockhart said at a real estate conference on June 18.

The decision to change the allowable ratio is part of an effort to “adapt to an ever-changing housing market,” Treasury Secretary Timothy Geithner said in the HUD statement. “By expanding refinance eligibility, we can bring relief to more struggling homeowners more quickly.”

Paul Miller, an analyst with FBR Capital Markets in Arlington, Virginia, said mortgage brokers have told him that many aren’t sending borrowers through the program because it’s cumbersome and the loan applications “still have a lot of bells and whistles, which makes them difficult to do.”

Read the full story: Fannie, Freddie to Refinance Larger Underwater Loans.

And here is the Housing and Urban Development release.

This should improve participation in the plan somewhat, although many struggling borrowers in Orange County and other parts of the country do not have loans owned or backed by Fannie or Freddie. And bigger loans means bigger risk to taxpayers.

In other news…

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dafox says:

July 1, 2009 at 2:38 pm

>> the loan applications “still have a lot of bells and whistles, which makes them difficult to do.”

you mean like verifying your income? oh the hassle!

Post Reply

Bill-1a says:

July 1, 2009 at 4:18 pm

Haven’t we been down the road with these 125’s before?

OC Pro says:

July 1, 2009 at 5:10 pm

Tell me if I’ve got it wrong…

Create bubble of “homeownership opportunity” -> Get carried away with lax underwriting -> Suffer foreclosure and loss mitigation crisis -> Create bubble with “maintaining homeownership opportunity”

It seems, Mr. Geithner, that the best way to adapt to the “ever-changing housing market” would be to stay the hell out of it and let nature run its course. All these moratoriums, exotic refinancing plans and $1000 “incentives” to loan servicers seem to do very little, besides annoy responsible homeowners and cause more of them to default than otherwise would.

cd says:

July 1, 2009 at 7:12 pm

The whole program rewards the banks..trying to stop the walk-aways…I would say anyone who takes this program is crazy…Car like financing for homes..Who would have thought?

This a prop job to keep serfs paying mos. for the rest of their lives and the bankers reduce losses…

Don’t do it..They will take money out of your tax refunds, SS etc if you decide to walk from your recourse loan…

Walk away and punish the pigmen….they made loans without doing their due diligence and now need to pay the piper…

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Mark in SF says:

July 1, 2009 at 5:22 pm

As I understand it, refinanced loans become recourse loans in California. Give up your chance to give back collateral to the lender and be free of over indebtedness, just to get a bit less monthly payments? Seems like a bad deal to me.

Bill says:

July 1, 2009 at 8:06 pm

What do you do when millions won’t pay their bills?

You give them yet another 125% loan.

This is insane.

When will the government realize that people who purchased bubble homes never intended on paying for them and they’re proving exactly this by simply refusing to pay.

The taxpayers will once again be held responsible for reimbursing more heavy losses incurred by giving even more negative equity loans out.

Why does the government insist that it has to constantly continue to shell out billions upon billions of dollars to high risk individuals, with a history of bad credit, who already have a track record of not living up to their legal contracts?

This is yet another recipe for disaster!

July 1, 2009 at 9:32 pm

Bill, people with bad credit won’t be able to get these loans….Heck, people with good credit will have a hard time getting these loans. Nothing is going to work unless they loosen up the requirements for income qualifying for people who have good+ credit. As of now, this segment of our homeownership society can’t refinance even if they wanted to.

Bill says:

July 2, 2009 at 11:48 pm

My bad!!!

These people living (squatting) in their homes for over 2 years without making a payment will be considered as A+ creditors in the eye’s of our government!

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republicans are TRAITORS says:

July 2, 2009 at 3:28 am

This makes me sick. Pitchforks and Torches!

Lou says:

July 2, 2009 at 11:10 am

I think the point of doing this is for an A+ borrower who is upside down will be able to refi out of a high interest or adjustable loan. Of course some will take advantage but for the most part I think it is good. These are NOT the subprime 125 seconds of the 80’s!

Lou Pacific
Real Estate and Mortgage Company Consultant
Serving the industry and OC for Over 30 Years.

old school says:

July 2, 2009 at 3:16 pm

we didn’t do “subprime 125 seconds” in the 80’s. we did common sense underwriting with maybe 90 ltv on a squeeky clean borrower, full doc- and that was in the late 80’s when values were rising.

even the 125’s of the mid-90’s weren’t subprime…

Post Reply

July 2, 2009 at 2:59 pm

Matt/Any Mortgage Experts-

Lets say you bought/refinanced at <80% LTV to avoid PMI, but now you need this 125 program to refi because your equity is shot… you would now have PMI correct? If you were an A+ borrower with <80% LTV, you likely had a pretty good interest rate to begin with, so going down from 5.5% to 5% but adding PMI kind of makes it not worth it right?

Then again…if you have an ARM recasting in 2010, and you don’t have a favorable index or just generally don’t like to have to rely on predicting interest rate markets (and I can’t say I blame you), I can really see where this would be helpful, regardless of your current rate. Are there other slices that will be similarly helped?

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