HUD Allows 125% LTV in Home Affordable Refis

[Update 1] The administration expanded its Home Affordable Refinance Program to include borrowers current on payments but whose mortgages are worth up to 125% of the house’s value. US Department of Housing and Urban Development (HUD) secretary Shaun Donovan announced the LTV limit expansion today while touring a Las Vegas neighborhood–a befitting venue for the reveal, considering 67% of homeowners there are underwater on their mortgages. “I am here in Las Vegas because it is ground zero of the foreclosure crisis,” Donovan says, according to HUD’s statement. “I am pleased to…make this announcement today, which I believe will make a critical difference in our ability to help many more Americans, particularly those here in Nevada, stay in their homes.” In its original terms, the refi program applied to a borrower whose mortgage — owned or guaranteed by government-sponsored enterprise Fannie Mae (FNM) or Freddie Mac (FRE) — did not exceed 105% loan-to-value (LTV). The expansion to 125% should broaden the program’s reach to deeply underwater borrowers. “This decision is part of our ongoing efforts to maximize the effectiveness of the Making Home Affordable program and adapt to an ever-changing housing market,” said Treasury Department secretary Tim Geithner in HUD’s statement today. “By expanding refinance eligibility,” he adds, “we can bring relief to more struggling homeowners more quickly. It’s a crucial step in our broader efforts to get America’s housing market and economy on the path to recovery.” Critics for months argued the 105% LTV limit could not reach borrowers that need it most — those who purchased more than three years ago, with little money down and when house prices hit a peak. And with mortgage rates edging back up in recent weeks from historic lows, refinancing in general for those who do qualify is growing difficult. Federal Housing Finance Agency director James Lockhart, in a mid-June press conference, acknowledged rising mortgage rates pose an issue to the agency refi program. “There’s a big pipeline so it probably won’t hit for a couple months,” he said. “But at some point, if we don’t see some moderation of rates, it could have an impact.” He also acknowledged the administration was considering expanding the LTV range to cover borrowers with more than 105% LTV, although he would give no exact figure for the new LTV target at that time. Bank of America and Merrill Lynch analysts estimated this week that only 6% of agency loans bear LTVs between 105% and 125%, and said that any expansion of the Home Affordable Refinance would have only a “minimal” impact on repayment speeds seen among securitizations when mortgages refinance. Write to Diana Golobay. Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments.

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