Equity-Poor Now Have Shot at Low-Rate Refinancing : Real estate: New plans require prospective borrowers to have virtually spotless credit.

Two large mortgage companies have introduced major new lending programs that have a special appeal for Californians who want to refinance their home loans at today’s low interest rates but lack the equity in their homes to qualify for a loan.

Countrywide Funding in Pasadena has unveiled a so-called easy-refinancing program that makes it a lender of last resort for borrowers whose home equity has been wiped out by the state’s prolonged drop in home values.

Meanwhile, the Federal National Mortgage Assn.--commonly known as Fannie Mae--launched a program last week to provide refinancing for homeowners whose equity is as small as 5% of the property’s market value.

Not everyone is eligible for the new programs. Both plans require prospective borrowers to have virtually spotless credit. Countrywide is also limiting its loans to borrowers who originally made a down payment of 20% or more, while Fannie Mae’s program is available only to people whose mortgages it already holds.

Many California homeowners have been prevented from refinancing because their properties have plunged in value. For them, the new plans offer a long-awaited chance to cash in on the prolonged drop in mortgage rates.

Rates on fixed, 30-year mortgages have steadily dropped from about 11% in May, 1990, to 7.1% today. That translates to a monthly savings of about $400 on a 30-year, $150,000 loan.

“The people who have been locked out of the refinancing market for so long are finally getting a chance to get their foot in the door,” said Earl Peattie, publisher of the weekly Home Mortgage Guide newsletter in Santa Ana.

More than 7 million Americans have refinanced their mortgages in recent years. But many Californians who bought their homes since 1990 have been unable to take part in the refinancing frenzy because most or all their equity has disappeared.

Lenders usually will not refinance a mortgage unless the borrower has a minimum 10% stake in the house. Fannie Mae’s new program lowers that ceiling to just 5% and is available through dozens of Southern California lenders.

Fannie Mae plays a key role in the nation’s mortgage market by purchasing home loans from financial institutions and then repackaging them for sale to investors. It currently handles the mortgages of nearly 1.43 million California homeowners.

Its new program “won’t help people who have seen their equity completely wiped out, but it will help a lot of borrowers who have seen their equity drop to the 5% level,” said Ann Logan, Fannie Mae executive vice president.

Logan said consumers have been swamping Fannie Mae’s hot line ((800)-732-6643) with requests for more information since the program was announced a week ago. However, some of those callers were disappointed to learn that they do not qualify for the plan.

In addition to limiting the new loans only to borrowers whose mortgages have already been sold to Fannie Mae, Logan said any borrower who wants to use the program must first pay off any second mortgage or credit line on their property. “A lot of people just don’t have the cash to do that,” she said.

Countrywide’s phones have also been ringing off the hook since it began the new refinancing program about a month ago, but it has only funded about 30 of the loans because the program is so new.

Under the plan--said to be the first of its kind offered by a major national lender--Countrywide will loan up to 100% of a home’s current market value--as long as the owner made at least a 20% down payment when the house was originally purchased.

The program has additional restrictions. According to Countrywide Vice President Laura Lippman, all proceeds from the new loan must be used to pay off the borrower’s existing mortgage debt and not for any other purpose.

Perhaps more important, rates on the loans are about 1 percentage point higher than rates on conventional mortgages, because borrowers with little or no equity are considered a higher risk.

As one of the nation’s largest mortgage lenders, Countrywide is an innovative firm whose programs are often duplicated by other institutions. But so far, most other bankers are waiting to see how Countrywide’s newest plan fares before they decide whether to offer a similar program.

“I’m not going to pass judgment on Countrywide’s wisdom, but loaning money to someone who doesn’t have any equity in their home flies in the face of the way I’ve been doing business my whole life,” said Sam Lyons, a senior vice president at Chatsworth-based Great Western Bank.

But other lenders like Countrywide’s new concept. Calabasas-based ARCS Mortgage, another big mortgage banker, is among those who expect to start offering a program for equity-poor homeowners soon.

“We’ll limit our risks by only making the loans to people with a perfect credit record and payment history,” said Ann Pennywitt, an ARCS vice president. “One ding on your record, and you can forget about qualifying for the loan.”