The Government Steps in to Help Homeowners
FHFA Launches New Refinancing Programs
The Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, launched a new program to help more households refinance their mortgages and take advantage of low interest rates.
Mortgage rates fell during the pandemic, spurring an increase in refinances as homebuyers took advantage of lower rates. Last year, around 8.8 million homeowners refinanced their mortgages. 6.1 million of them refinanced with home loans backed by Fannie Mae and Freddie Mac.
However, borrowers with less than perfect credit had trouble refinancing their loans. They faced stringent underwriting requirements which many could not meet. The new program, which goes into effect this summer, aims to make the refinancing process easier for those homeowners.
Refinancing Made Simpler
The program eases credit requirements, simplifies the amount of documentation required, and waives some of the fees associated with refinancing a home mortgage. To be eligible for the new program, borrowers have to make 80% less than the median income of the area and not miss more than one mortgage payment in 12 months. The program is only for borrowers with a Fannie Mae or Freddie Mac-backed mortgage.
The FHFA said borrowers who participate in the program could save $100 to $250 per month if they refinance into a lower mortgage rate. The program could be a big help to homeowners who lost income during the pandemic and subsequently could not refinance their mortgages.
Low Interest Rates Benefit Strong Credit Scores
Low-interest rates have helped individuals with strong credit profiles during the pandemic. This program can help homeowners with less than perfect credit, but consumer advocates and industry experts question how many will benefit. Some argue that many struggling borrowers are already in pandemic forbearance programs and would not be eligible to refinance. Others question the need for a credit check when refinancing a Fannie or Freddie-backed home loan.
Either way, most agree this program is a much-needed first step to help more homebuyers take advantage of historically low mortgage rates.
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