The Federal Housing Finance Agency didn’t have a set date for its new refi option targeted to low-income borrowers when it announced the program last week. But on Wednesday, both Fannie Mae and Freddie Mac announced release dates for their versions of the refi product.
Fannie Mae’s RefiNow option will be available June 5, while Freddie Mac’s Refi Possible will be available two months later in August. It’s estimated that the options, intended to pave the way for lower-income borrowers who missed out on the massive refi wave in 2020, will save homeowners an additional $100 to $250 a month on their mortgage payments.
To take advantage of the new refi options, lenders must ensure borrowers save at least $50 a month in their mortgage payments while simultaneously dropping their interest rate by at least 50 basis points. The FHFA will also require that lenders provide a maximum $500 credit for an appraisal if the borrower is not eligible for an appraisal waiver, which the GSEs will reimburse to the lender once the loan is sold to them.
Additionally, the FHFA will waive its adverse market refinance fee for borrowers with loan balances at or below $300,000.
The option comes with a number of qualifications, including that a borrower must have an income at or below 80% of the area’s median income and have been current of their payments for the last six-months, with no more than one payment missed in the last 12.
Industry leaders commented on this stipulation given that a number of borrowers who are in this income bracket likely took out some form of forbearance, and the FHFA has yet to clarify whether forbearance plays a factor in this qualification.
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Other qualifications for the program require that borrowers must not have a mortgage with a loan-to-value ratio greater than 97% and a DTI no higher than 65%. Lastly, borrowers must have a FICO score no lower than 620. This credit score plays an important factor, according to Dave Stevens, former CEO of the MBA who also served as senior vice president of single family at Freddie.
“The reality is that borrowers who are in this bracket likely have an FHA loan,” Stevens said.
But the GSEs are confident the new option could assist millions of borrowers. Freddie Mac research released on Wednesday revealed between February and June of 2020, high-income households saved 10 times more than those with lower incomes by refinancing more frequently.
Geographically, the counties hit hardest by the pandemic also saw some of the largest refinancing income gaps.
“Refi Possible could help over a million homeowners with a Freddie Mac-backed mortgage by making it easier for them to refinance,” said Pamela Perry, single-family vice president of equitable housing at Freddie Mac. “We are continuing communications and outreach to a broad group of organizations and community groups so that those eligible can take advantage of this program to realize the savings and wealth-building benefits of refinancing.”