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High LTV Streamlined Refis Without M.I.

High LTV Streamlined Refis Without M.I.Home Affordable Refinance program details released

March 4, 2009

By MortgageDaily.com staff

A second piece of the Obama administration’s mortgage rescue plan involves refinancing borrowers with high loan-to-values and as-agreed payment histories. The program enables streamlined underwriting and the ability to skip mortgage insurance and appraisals on some loans.The Home Affordable Refinance program is part of the Homeowner Affordability and Stability Plan originally unveiled by the U.S. Department of the Treasury last month. It impacts loans owned or guaranteed by either Freddie Mac or Fannie Mae.

The refinance program is expected to help between 4 million and 5 million borrowers with LTVs from 80 percent to 105 percent refinance at today’s lower mortgage rates.

A example cited a $207,000 loan with a 6.5 percent rate where the borrower could save around $2,300 annually by refinancing at 5.16 percent.

In details released today, the Treasury said it expects these refinances to rely on existing documentation and not necessarily require appraisals.

“This flexibility will make the refinance quicker and less costly for both borrowers and lenders,” the Treasury said.

The program ends in June 2010.

Freddie released a statement praising the plan and noting that there is no maximum total LTV. Lenders that use Freddie’s automated valuation model, Home Value Explorer, won’t need to provide standard representations and warranties on the property’s value, condition and marketability.

Freddie explained that loans will only need to be re-underwritten if the new payment increases by more than 20 percent. In those cases, a simplified underwriting process will be used. In addition, no mortgage insurance is required if none was required on the original loan, “Otherwise, MI coverage on the new loan must be the same as on the original mortgage.”

In its own statement, secondary rival Fannie said most borrowers won’t be required to buy new or additional mortgage insurance even if the LTV exceeds 80 percent.

“Any existing mortgage insurance may be carried forward to the new loan,” the statement said. “In addition, Fannie Mae can refinance loans up to 105 percent of a home’s value with this new flexibility, so even borrowers who are ‘underwater’ — who owe more than their home is worth — may be able to refinance.”

But U.S. Rep. Scott Garrett (R-N.J.) is concerned about refinancing loans with loan-to-values above 80 percent without mortgage insurance. In a letter today to Federal Housing Finance Agency Director James Lockhart, he cited Title 12 of the U.S. Code, sections 1717(b)(2), 1717(b)(5)(C), 1454(a)(2) and 1454 (a)(4)(C) — which he said requires that Fannie and Freddie require mortgage insurance when LTVs exceed 80 percent.

“There is no specific language under this title that provides the regulator of these two entities any discretion for when or how to apply this requirement,” according to the letter to Lockhart — who oversees government sponsored enterprises Fannie, Freddie and the Federal Home Loan Banks. “Therefore, I respectfully request your detailed explanation of the statutory authority that permits these actions.”

Freddie said seller-servicers must deliver Relief Refinance Mortgages under contracts taken out on or after April 1, 2009, through its online selling system. The loans must be originated by June 10, 2010.

The Treasury also released today details on its $75 billion Home Affordable Modification program. Including 3 to 4 million borrowers expected to benefit from the modification program, between 7 and 9 million overall borrowers are expected to be impacted from both programs.

“Today, we are providing servicers with the details they need to begin helping eligible borrowers,” Treasury Secretary Tim Geithner said in a statement. “It is imperative that we continue to move with speed to help make housing more affordable and help arrest the damaging spiral in our housing markets.”

Geithner boasted about the Obama administration’s ability to move the plan into gear just two weeks after announcing it.

Freddie said the program and its companion modification program could have a material impact on some of its participation certificates.

Related:

Details of Massive Modification Plan Emerge
The Obama administration today released more details on its $75 billion loan modification program.

Obama administration unveils terms of modification plan
Massive Foreclosure Plan Unveiled
The Obama administration plans to throw $75 billion at the country’s foreclosure problem. As many as 9 million mortgages could be impacted, including conforming loans that have been paid on-time and at-risk mortgages. The plan — which could be a boon for laid-off mortgage employees — includes loan-to-value exceptions on conforming refinances, bankruptcy cramdowns and cash payments for successful modifications.
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