Remember those special refinance programs introduced by Fannie Mae and Freddie Mac this past summer to help two million eligible low and moderate-income homeowners decrease their monthly payments?
These government-backed refinance initiatives are being retooled to benefit even more lenders and homeowners. In October, it was announced that in the coming months, Fannie will expand certain eligibility requirements for its RefiNow program and Freddie will do the same for its Refi Possible program.
The original area median income (AMI) requirements were limited to borrowers with current income at or below 80 percent of AMI. However, October’s announcement expands the income threshold to include moderate-income borrowers, incomes at or below 100 percent of AMI.
Why? During the “historic refi boom” of mid-2020 to mid-2021, Fannie and Freddie found there was actually a drop in the share of refinance loans made to borrowers below 100 percent of AMI. These borrowers risk being left on the sidelines during a generational opportunity to lock in more sustainable monthly payments.
That’s not the only good news. Operational frictions are being removed in calculating these programs’ refinance benefit to borrowers and in their closing costs. By early 2022, Fannie and Freddie will incorporate speedier and cheaper desktop appraisals into their selling guidelines to reduce inefficiencies in the mortgage process! Desktop appraisals were one of several temporary flexibilities initiated last year in response to the COVID-19 pandemic (as opposed to a hybrid appraisal or traditional appraisal).
This one-two punch is sure to open the refinance door for some credit unions and their members who were unsure about refinancing or found the original program difficult to navigate. Both the new AMI and desktop-appraisal option significantly increases the population of potentially eligible borrowers.
Participating in RefiNow or Refi Possible means a borrower’s mortgage rate could be reduced by at least 0.5 percent or higher. Additionally, borrowers can roll up to $5,000 in closing costs into the mortgage, covering lender fees, points or prepaid costs, which frees up money for cash-to-close funds.
To qualify for RefiNow or Refi Possible, a borrower must have:
- A Freddie or Fannie-owned mortgage where the house is the collateral behind the mortgage and also the primary residence. You can determine which government entity owns the mortgage by visiting Freddie’s Loan Look-Up Tool or Fannie’s Mortgage Loan Look-Up
- No missed payments in the past six months and no more than one missed payment over the previous 12 months.
- At least three percent equity in the home (same as a loan-to-value ratio at or below 97 percent). The home’s equity is the difference between the current mortgage principle owed and the property’s estimated market value.
- A debt-to-income (DTI) ratio below 65 percent. The DTI is the percentage of gross monthly income (pre-tax) that is taken up by all monthly debt payments in a borrower’s budget.
- A minimum credit score of 620 or higher.
As average mortgage rates still remain low by historic standards, this is a unique opportunity that credit unions should consider. Current CU Members Mortgage credit unions have promotional material in the marketing library to share with members. Contact us at firstname.lastname@example.org for more information.