More ‘underwater’ borrowers could be eligible for lower interest rates
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The government regulator in charge of the nation’s two biggest mortgage financers, Fannie Mae and Freddie Mac, is considering loosening restrictions that would allow more American homeowners to refinance their mortgages into historically low rates.
President Obama, in his address to Congress Thursday night, said that helping homeowners refinance their loans could free up a considerable chunk of spending each year for families. Mortgage rates have dived to historic lows amid concerns the economy is sinking again.
‘To help responsible homeowners, we’re going to work with federal housing agencies to help more people refinance their mortgages at interest rates that are now near 4%,’ Obama said. ‘That’s a step that can put more than $2,000 a year in a family’s pocket, and give a lift to an economy still burdened by the drop in housing prices.’
In response, the Federal Housing Finance Agency, which oversees mortgage titans Fannie Mae and Freddie Mac, said in a statement Friday that it would review its policies to see if more homeowners would qualify for the administration’s Home Affordable Refinance Program. The program covers only mortgages originated before June 2009 and owned or guaranteed by Fannie Mae or Freddie Mac.
The program was introduced in 2009 to give homeowners who were current on their mortgages the opportunity to refinance their loans into those with lower rates. About 838,000 borrowers have refinanced through the program, fewer than expected.
In order to be eligible, borrowers must be current on their mortgage payments and their mortgages must have a loan that covers between 80% to 125% of the market value of the property.
That requirement has become increasingly difficult for borrowers due to the plunge in U.S. home prices, which have left hundreds of thousands of borrowers underwater, or owing more on their properties than those homes are worth. In some hard-hit areas, such as North Las Vegas, for instance, more than 80% of homeowners have plunged underwater.
‘There are several challenging issues to work through here and the outcome of this review is uncertain,’ the agency said in its statement.
According to a weekly survey by Freddie Mac released Thursday, lenders were offering the 30-year fixed-rate home loan at an average rate of 4.12% this week, down from 4.22% last week. The 15-year fixed loan was at 3.33%, down from 3.39%.
Both of the rates set records in the survey. Borrowers would have paid an average of 0.7% of the loan amount in upfront lender fees and points on the 30-year loan and 0.6% on the 15-year loan, Freddie Mac said.
-- Alejandro Lazo