Homeowner Affordability Plan

On April 6th the new affordability plan was put into action. The plan was designed to assist homeowners who would like to refinance and lower the interest rate on their current home and mortgage payment but as a result of the decrease in property values do not have enough equity. Another problem is the fact they may have enough equity, but not the 20% needed to avoid paying PMI. If they did have 20% when they took out the original mortgage they did not have to pay PMI. Having to pay it now would offset the possible lower mortgage payment and defeat the purpose of refinancing. This program only applies to mortgages currently held by Fannie Mae or Freddie Mac. Fannie Mae has named their program DU Refi Plus and Refi Plus which are explained below.


FANNIE MAE

Today we will mainly be addressing the DU Refi Plus as this the plan most borrowers will be seeking and Refi Plus has many similarities .

DU REFI PLUS

Under this plan the borrower must demonstrate that they have not been late on their mortgage. Due to a decline in home prices or where mortgage insurance (PMI) is not available they have been unable to refinance. The loan must be underwritten through Fannie Mae's Desktop Underwriter Program.

If you have an adjustable rate mortgage and would like to change to a stable fixed rate mortgage, this would plan would also apply.

The property must a 1-4 unit.
The loan must be held or guaranteed by Fannie Mae or Freddie Mac.

The new loan amount cannot exceed 5% of the appraised value. Let's say your home appraises for $150,000 you will be able to refinance up to $157,500. So if you currently owe $152,500 you should be able to also include most if not all of your closing costs in the new mortgage.

There must also be a positive benefit to the borrower such as:

1. A reduced monthly mortgage principal and interest payment

2. Move from an adjustable to a fixed rate.

SECOND MORTGAGES

No new subordinate financing is allowed. If you currently have a second mortgage the second mortgagee must subordinate. This means the second mortgagee must agree to let you refinancing ad agree to remain in the second position. This would be to their advantage because you are more likely to be able to meet the new reduced mortgage payment

CREDIT SCORES

There are no credit score minimums however if your credit score is too low you may have to pay additional fees or have a somewhat higher rate than someone with good credit. There may also be a higher cost depending on the loan to value.

ADDING OR REMOVING BORROWERS

The original borrowers must remain on the new mortgage unless there are extenuating circumstances. Adding new borrowers is acceptable under certain conditions.
There are other factors that must meet underwriting guidelines.

PRIVATE MORTGAGE INSURANCE (PMI)

You will not have to pay PMI if:

1. You did not have PMI when you purchased the home

2. It was removed as a result of paying down your mortgage balance

3. Your home's value had appreciated and the PMI was removed

Even if you borrow over 80% of the appraised value of your home when you refinance, you will not be required to pay PMI.


If you currently have PMI then you will be required to obtain it again through DU Refi Plus.

Lender Paid PMI is allowed.

REFI PLUS

The main difference between DU Refi Plus and Refi Plus is that the latter requires the refinance be serviced through the original lender. With DU Refi Plus the lender does not have to be the original servicer.

FREDDIE MAC

Freddie Mac's program is called Relief Refinance Mortgage. The biggest difference with this program is that if the new mortgage payment does not increase by more than 20%, the lender will not have to re-underwrite the borrower.

IS MY LOAN HELD BY FANNIE MAE OR FREDDIE MAC ?

Here are the links to the sites to determine if your loan is held by either Fannie Mae or Freddie Mac:

http://www.fanniemae.com/index.jhtml

https://ww3.freddiemac.com/corporate/