HAMP Revamps Underwater Refinancing Program

By Kevin Chiu

The U.S. government’s giant lenders, Freddie Mac and Fannie Mae have revamped the Home Affordable Modification Program (HAMP) to underwater home illustration make it easier for more underwater homeowners to refinance mortgages. The government sponsored enterprises, under the direction of the Federal Housing Finance Agency detailed the changes Tuesday evening.

The program is intended to allow underwater homeowners to refinance at lower interest rates, but does not reduce mortgage principal. Fannie and Freddie will reduce borrowers’ fees and relieve lenders from some liability on mortgages they underwrite, and will not require banks to compensate the giant lenders for losses on mortgages that default.

Mortgage underwriting liability has been a crucial issue for banks and mortgage companies in the aftermath of the financial crisis. “The lender is not responsible for any of the representations and warranties associated with the original loan,” Fannie Mae wrote in guidance sent to lenders.

In issuing the new guidelines, the Obama administration is attempting to remove barriers for homeowners wanting to refinance through the Home Affordable Modification Program and reduce foreclosures. Mortgage originators selling refinances to customers will no longer have to make representations and warranties regarding borrower qualifications to Fannie Mae and Freddie Mac if the loan-to-value is above 80%.

new priced home

The LTV has been removed so mortgage holders can take advantage of near record low mortgage rates. The loan-to-value was limited under previous guidelines at 125%, despite the fact that millions of homeowners refinanced their homes during the real estate boom as high as 150% LTV.

The fixed 30-year mortgage averaged 3.99% last week, according to Freddie Mac, the second lowest the benchmark rate has reached.

At least one mortgage applicant seeking a refinance will have to prove a source of income to qualify for a loan when two mortgage holders apply. The FHFA is also waiving appraisal fees and an automated appraisal may be used in place of a full appraisal to determine a home’s current value.

The refinance program has also been extended for applicants to submit applications, starting December 1 st and will conclude at the end of 2013. Homeowners with FICO scores as low as 620 may be able to qualify to refinance mortgages under the revamped structure.

As many as two million underwater homeowners could be helped under the program, which was first proposed by Senator Barbara Boxer (D-Calif.), who made the proposal in Congress to save more troubled homeowners from foreclosure. However, only about 900,000 mortgage holders have been helped under HAMP refinancing mortgages and about the same number are expected to receive refinances through the revamped program.