Refi Program’s LTV Raise Would Have ‘Minimal’ Effect

The bad news is, home prices have fallen, plunging you underwater on your mortgage and meaning you owe more on your home than it’s currently worth. The good news is, there’s a federal refinance program out there that can help you get into a mortgage rate that will lower your monthly payments to a figure you can afford. But the really bad news is, mortgage rates keep going up. And you’re too far underwater to apply, anyway. At least for now. Currently, the Obama administration’s Making Home Affordable refinance program allows for borrowers with mortgages up to 105% loan-to-value (LTV) — or 5% more than the current market value of the home — to qualify for refinance. The program applies to those with mortgages held or guaranteed by government-sponsored enterprises Fannie Mae (FNM) and Freddie Mac (FRE) . But critics for months have said the LTV limit will not reach the borrowers who 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 press conference last week, 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 is 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. FHFA, Fannie and Freddie’s conservator, has said applying Lockhart’s comment to the effect of 125% LTVs are eligible for sale into Real Estate Mortgage Investment Conduits toward plans for a new refi LTV limit are a misrepresentation of Lockhart’s comments. Media reports that the LTV limit could top as much as 125% might be speculation, but the idea is catching on, with JP Morgan commentary on the mortgage-backed securities market late last week echoing the figure. “We expect the proposal to raise the Obama refi LTV limit to 125[%] will have a minimal impact on speeds since only under 10% of the universe could benefit theoretically,” the analysts said. 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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