WASHINGTON -- Fannie Mae and Freddie Mac have published the rules governing their upcoming mass refinancing campaigns, and they're more favorable -- especially for owners of second homes and small investment properties -- than indicated by the White House and Treasury last month.
Although initial reports suggested that the refis would be for owner-occupied primary residences, the guidelines sent to lenders March 4 by Fannie and Freddie say second homes and small rental properties are eligible, provided their mortgages already are in the companies' portfolios or securitizations and have been paid on time.
Brad German, a spokesman for Freddie Mac, said second homes and investment properties with one to four units are important because they may "help stabilize neighborhoods and housing markets." Refinancing investor-owned rental units, he added, can "help reduce renter evictions by putting landlords in a (more affordable) refi that improves their chance of success."
Under both companies' new programs -- which are being undertaken at the behest of the Obama administration -- an estimated 4 million to 5 million owners whose mortgages are held by Fannie and Freddie will be eligible for refinancing to lower rates even though they'd normally not qualify because of property value declines. Applications are being taken by participating lenders now, though no loans are scheduled for funding by Fannie or Freddie until early April.
To illustrate how it might work: Say you bought a house several years ago for $400,000 with a $350,000 first mortgage at 6.5 percent. Because of local property devaluation, your house is now worth roughly the amount of your loan balance, making it impossible to refinance into today's rates in the low 5 percent range.
The Fannie/Freddie programs would allow you to refinance, provided you've got a solid repayment record, your loan balance exceeds your property value by no more than 5 percent, and your loan is either owned outright or contained in a mortgage bond guaranteed by either corporation.
To make their programs as widely accessible as possible, Fannie and Freddie's March 4 instructions offered a variety of concessions. Tops on the list: Credit scores. Both companies plan to waive their usual minimum borrower credit score requirements for most applicants. Participating lenders will still pull your scores and credit files, but generally there's no specific cutoff point below which you'll be rejected.
Equally important for some highly leveraged homeowners, the companies are setting no limits on the amounts of existing second mortgages or home equity line balances, as long as the secondary loan creditors agree to re-subordinate their liens behind the new Fannie- or Freddie-funded mortgage.
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