The Federal Housing Finance Agency (FHFA) announced Fannie Mae and Freddie Mac will introduce a new refinance program for low-income borrowers to lower their interest rates and monthly payments.
The offering will be available for single-family homes and the FHFA estimates that borrowers who take advantage of the new refinance option could save an average of between $100 and $250 a month.
“Racial and income disparities in refinance take-up rates have persisted for far too long,” said Sheila Bair, Fannie Mae chairwoman of the board. “With this initiative, we strive to narrow the gap. We thank FHFA for its strong leadership to help all eligible homeowners reduce their monthly housing costs by taking advantage of the historically low mortgage interest rates.”
The new refinance option includes:
- A requirement that the lender provides a savings of at least $50 in the borrower’s monthly mortgage payment, and at least a 50-basis point reduction in the borrower’s interest rate
- A maximum $500 credit from the lender for an appraisal if the borrower is not eligible for an appraisal waiver (the enterprises, Fannie Mae and Freddie Mac, will provide the lender a credit of $500 upon the loan’s sale to an enterprise)
- A waiver of the 50 basis point up-front adverse market refinance fee for borrowers with loan balances at or below $300,000
“Last year saw a spike in refinances, but more than 2 million low- income families did not take advantage of the record low mortgage rates by refinancing,” FHFA Director Mark Calabria said. “This new refinance option is designed to help eligible borrowers who have not already refinanced save between $1,200 and $3,000 a year on their mortgage payment.”
The the refinance product will become available through Fannie Mae and Freddie Mac in the summer of 2021, and qualifications include:
- Have an enterprise-backed one-unit, single-family mortgage that is owner-occupied
- Have an income at or below 80 percent of the area median income
- Have not missed a payment in the past six months, and no more than one missed payment in the past 12 months
- Not have a mortgage with a loan-to-value ratio greater than 97 percent, a debt-to-income ratio above 65 percent, or a FICO score lower than 620
“Millions of homeowners have benefited from refinancing to reduce their monthly mortgage payment and build long-term wealth,” said Donna Corley, Freddie Mac executive vice president and head of single-family business. “Freddie Mac’s new Refi Possible mortgage creates more equitable opportunities by making it easier for homeowners in lower income brackets to refinance their mortgage.
“Refi Possible reaches many homeowners who can benefit from refinancing and provides flexibilities that incentivize our clients to serve these eligible borrowers moving forward,” Corley said. “Our goal is to expand access to credit responsibly and make sure we are supporting sustainable homeownership.”
The FHFA is beginning this new initiative even as it expires previous COVID flexibilities that helped many homeowners who were unable to make their mortgage payment during the pandemic. The FHFA announced last week that Fannie Mae and Freddie Mac will extend some temporary loan origination flexibilities until May 31, 2021.
This extension from the flexibilities that were previously set to end on Apr. 30, 2021 after the FHFA’s last extension will be the final extension. The FHFA explained that as economy recovers, usage of these flexibilities has slowed, and that it expects to retire all temporary selling flexibilities on May 31, 2021.