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Financial Services Law Insights and Observations

FHFA announces refis for low-income borrowers

Federal Issues FHFA Fannie Mae Freddie Mac Mortgages

Federal Issues

On April 28, the FHFA announced that Fannie Mae and Freddie Mac will implement a new refinance option for low-income borrowers with Enterprise-backed single-family mortgages. The option applies to eligible borrowers that (i) have an owner-occupied Enterprise-backed one-unit single-family mortgage; (ii) have income at or below 80 percent of the area’s median income; (iii) “have not missed a payment in the past six months, and no more than one missed payment in the past 12 months”; and (iv) do 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. Under the new refinance option, lenders must provide both a minimum savings of at least $50 in the borrower’s monthly mortgage payment, and at least a 50-basis point decrease in the borrower’s interest rate. In addition, the new refinance choice includes “a maximum $500 credit from the lender for an appraisal if the borrower is not eligible for an appraisal waiver (the Enterprises will provide the lender a credit of $500 upon the loan’​s sale to an Enterprise.)” The new option also includes “a waiver of the 50-basis point up-front adverse market refinance fee for borrowers with loan balances at or below $300,000.” As previously covered by Infobytes, the FHFA announced a new adverse market refinance fee of 50 basis points, or 0.5 percent, on certain refinance mortgages to cash-out and no cash-out refinance mortgages “except for Construction Conversion Mortgages that qualify for single-closing Interim Construction Financing and Permanent Financing,” which went into effect last September. According to FHFA Director Mark Calabria, “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.”

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