GSEs ease mortgage buyback rules on HARP
Fannie Mae and Freddie Mac eased some guidelines for lenders refinancing mortgages, including new relief from buying back the loan, according to an alert sent to lenders.
Beginning immediately, Fannie will waive future repurchase claims on the new loan if an appraisal on the property is done. Previously, if a lender obtained an appraisal, it was still responsible for representations and warranties for the property's value on the new loan.
Freddie relieved lenders of buyback risk tied to "creditworthiness, any other underwriting requirements, value, condition and marketability of the (the property) and certain fraud requirements" for refinance applications received beginning Nov. 19, according to its notice.
Repurchase risk still remains for new servicers refinancing a mortgage financed by either Fannie or Freddie.
Before the changes announced Friday, the GSEs required retail lenders to verify that at least one of the borrowers on the loan had a source of income if the monthly mortgage payment changed by 20% or less after the refinance. It waived this requirement Friday and will allow retail lenders to verify the borrower has enough reserves to cover 12 months of the new mortgage payment before approving the new loan.
The reserves can include checking and savings accounts, stocks, bonds, mutual funds and even amounts vested in retirement accounts, according to the changes.
The GSEs also reduced how much documentation lenders will need to get the refinance approved. Lenders won't be required to verify a borrower's past or current income. Fannie and Freddie also waived requirements to look into large deposits on borrower statements.
The changes were made to expand even further the reach of refinancing and to assist borrowers who owe more on their mortgage than their home is worth. The Federal Housing Finance Agency altered the Home Affordable Refinance Program to remove some repurchase liability on the old loan for the original servicer.
Other barriers to HARP including some appraisal requirements and upfront fees and a loan-to-value ceiling were also removed.
More than 519,000 underwater borrowers refinanced under HARP through July, more than the roughly 400,000 in all of 2011.
Democrats in the Senate reintroduced legislation last week to expand HARP to waive repurchase risk for all lenders, not just the original one. But the bill will not likely pass before the election in November, if at all.
Still, the GSEs expect the new rules will allow "lenders more efficiently reach an even broader base of eligible borrowers," according to the alert put out by Fannie.