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March 13th, 2009

Fannie & Freddie’s refi plans differ

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As our readers probably know, an important component of the new HASP program is to offer as many as five million “responsible” homeowners the opportunity to refinance their home loans. An important point to remember about this, however, is that it applies only to ‘conforming’ mortgages — those which are owned by Fannie Mae or Freddie Mac. The plan allows refinancing up to a current balance of $729,750 (the “expanded conforming” amount which was put in place last year and renewed this year).

However, there is one key difference: borrowers with loans owned by Freddie Mac won’t be able to comparison shop among lenders to find one with lower rates and fees. That restriction does not apply to Fannie Mae-owned loans:

Brad German, a spokesman for the government-backed provider of funding for mortgages, said any borrower with a Freddie-backed loan who wants to refinance under the program needs to do so through the company that services his current loan. Loan servicers, typically owned by lenders, collect monthly payments.

Fannie Mae said borrowers with Fannie-backed loans will be able to seek refinancings under the program from more than 30,000 lenders nationwide. While Fannie is letting borrowers shop around, those deemed a higher risk are hit with fees that can total 3% or more of the loan balance. Freddie’s maximum fee on these refinancings is 0.25%.

Also keep in mind that HASP only applies to borrowers with owner-occupied properties “who are current on their mortgage but have been unable to refinance because their house has decreased in value,” according to this FDIC site.

Those applying for a refi need to show that they can qualify for the terms of the new (and lower-rate) mortgage, and demonstrate enough verifiable income so that the new loan is “affordable and sustainable.” The FDIC also warns to watch out for potential scams:

Borrowers should be wary of any organization that attempts to charge a fee for housing counseling or “assistance” in finding a lender that will refinance mortgages under the Homeowner Affordability and Stability Plan, especially if it asks for money in advance.

If you’re interested, you can get a lot more info at FinancialStability.gov.

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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