Fannie Mae Relaxes Standards For Refinancing

Bloomberg says that Fannie Mae will loosen standards for refinancing in the hopes that more homeowners will be able to take advantage of historically low interest rates.

Fannie will lower its credit score requirements, reduce the amount of income verification needed, and waive the need for appraisals. These changes apply to loans which the company owns or guarantees.

“To allow more borrowers to take advantage of today’s historically low interest rates and help the lending community break the logjam in mortgage refinancing, the company is extending its refinance offerings,” a Fannie Mae spokesperson said in an e-mailed statement. The program “will streamline” refinancing “for potentially millions of current mortgage holders,” he said.

Fannie Mae to Loosen Rules for Home-Loan Refinancing (Update2) [Bloomberg]
(Photo:cmorran123)

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  1. B says:

    This…doesn’t seem like a good idea to me. Shouldn’t banks be more careful about who qualifies, not less? This sounds just like what got us into trouble in the first place.

    • IT-Chick says:

      @B:

      What mostly got people into trouble were crappy loans to people who either couldn’t afford the loan, or who were put into an ARM.
      Those decisions and the impact made banks be more stern with who they loan to. Hopefully this can find a happy medium. There are a lot of homeowners out there who need help making their payments or need to refinance, but who can afford their homes at a cheaper rate.

      • Ingram81 says:

        @Ash78: I need to refinance! Ive got a fixed rate and its too high. I thought Id be making more this year but because of the sucky economy I’m not making my 100K mark yet. In fact because my house hasn’t doubled in value yet, I need a bailout so I can have the 20% down for a reasonable rate to refi at….Oooohhh Mr. Congressman….

    • Ash78 ain't got time to bleed says:

      @B: Yes and no. This is for refis, which usually require 20% equity coming in. Since house values are pretty depressed right now, 20% equity is a pretty safe position for a lender. Much more conservative than financing a first-time buyer, purchasing a home, nothing down, with a 3/1 ARM or something like that.

      Now that I’ve said that, watch values drop another 20%.

      • B says:

        @Ash78: The 20% equity is a big of a trick, though, as they’re not requiring appraisals, so the equity could be based on an inaccurate valuation of the house.

        • TouchMyMonkey says:

          @B: Uh, like the one the tax assessor does when he’s calculating your property taxes? The one you complain about all the time? There ya go.

    • TouchMyMonkey says:

      @B: Dude, some Republican idiot wants to put guaranteed 4% mortgages in the stimulus bill. If he succeeds, I’ll be first in line for that. And I thought 5.5% fixed was good deal (it was).

    • bender123 says:

      @B:

      “These changes apply to loans which the company owns or guarantees. “

      Since the people already have their mortages through Fannie, it sounds like risk reduction. Accept that you wont make as much money on the loan, but allow for more people to lower payments and avoid default.

      If only the banks and CCs would follow this and figure out that the only way they will make money in this mess is to give people terms that allow them to pay it off instead of defaulting.

    • SadSam says:

      @B:

      I think the idea, helping people in bad loans get into good fixed rate loans is helpful, and I like the idea that FM is making the process easy.

      But, this seems close to a no-doc loan as they only have to provide one pay stub and the house won’t be appraised in person. We are in the middle of REFI ourselves and the appraisal was way more in depth than any prior appraisal I’ve been involved in. The appraiser measured and photographed each room, opened each closet, etc. There is a chance we won’t get our sweet REFI because the house we bought in 2004 on which we put down 25%+ may not appraise at the level we need it to.

    • mac-phisto says:

      @B: i think the general idea is to get as many people out of bad loans as they can & avoid as many foreclosure actions as possible.

      the fact that this is particularly for refi’s should help mitigate abuse of the program – it’s not like we’re going back to 2006 & giving $500k loans to people on SSI.

    • synergy says:

      @B: THIS.

  2. howie_in_az says:

    I have a fixed-rate mortgage, but I’m going to phone my lender and see what they can do to reduce the interest rate. Why should the irresponsible get all the breaks?

    • Ingram81 says:

      @howie_in_az: My thoughts exactly. I’m so farking sick of it, how those of us who were smart and responsible, end up getting f’ed and paying for those who weren’t.

      Please keep me posted how it goes, Im really interested and hope you get somewhere.

  3. Joshua Willis says:

    Umm, giving loans to people who don’t qualify for them is part of the reason we’re in the position we’re in today.

    • lannister80 says:

      @Joshua Willis: Smaller interest rate = smaller monthly payment. Maybe they’ll qualify then. Heck, if I could go down 2 full points on my mortgage I’d save $300/month. That’s big $ in a family budget.

    • Shadowman615 says:

      @Joshua Willis: These are for people who already have loans. The point is to help enable them to continue repaying their loans rather than have to foreclose, which ultimately benefits the lender as well.

    • Yossarian says:

      @Joshua Willis: They’re already in the house, whether the original mortgage was wise or not. If they can get a lower payment and not add yet another foreclosure to the bank/neighborhood, it’s probably the way to go.

      Worst case, you end up with a foreclosure that would have been inevitable anyway. Best case, a family saves its home and credit and everyone benefits.

    • Ingram81 says:

      @Joshua Willis: No it’s not, it’s clearly GWB’s fault, duh!

      /s

  4. ElizabethD says:

    Perhaps there is something I don’t understand about this strategy, but I tend to agree with the skeptics who have commented before me here.

    • Shadowman615 says:

      @ElizabethD: So what’s the alternative? Just let all of the people with recently-adjusted high-interest ARMS foreclose since they can’t refinance? Everyone loses in that case.

  5. mcjake says:

    Is this a good thing or a bad thing?

    • god_forbids says:

      @mcjake: Reply hazy, try again.

      That is to say, yes it is a bailout. Yes, parts of our society [and Congress] thinks homeowner = angelic, wonderful person who deserves their piece of the American dream RIGHT NOW, GODDAMN IT!

      On the other hand, it will likely incentivize a new wave of home-buying and prop up a market that should die for now. Hell, it sure makes me wanna run out and buy a home I can’t afford and let Obama Christ pay my mortgage!

  6. peokuk says:

    I suppose your home still has to be worth more than what you owe?

    • ThickSkinned says:

      @peokuk: Exactly. The people with mortgages underwater are the forgotten ones in this whole mess. I would love to refi, but owing $20k more than the value of my house makes that impossible through any lender.

      • 12-Inch Idongivafuck Sandwich says:

        @ThickSkinned: I’m with you. I’d love to refinance but since my place is worth about 60k less than my mortgage is for, no such luck.

        /not because of bad lending or not being able to afford it, but a better rate is always nice

      • JayDeEm says:

        @ThickSkinned: Same thing here. Bad timing on my part (March ’06) and not-so-great location means we’re under by about $60k-$80k. My 2 immediate neighbors both walked, along with countless others around my neighborhood.

        The foreclosure sale on the house next to mine was for less than *half* of the original sale price. There is currently not much incentive for people like myself not to walk away at this point, not that I’m planning to do so but I understand why so many people are.

        For years buying a home was touted as a great investment, not just by tv ads but by friends, relatives and co-workers. It’s reasonable to expect that values will fluctuate, but also reasonable to expect that putting money into your house will eventually mean that you get at least some of that back out of it. For the millions of people like me whose only mistake was buying at the wrong time, that ‘investment’ became a huge liability when the market fell off a cliff.

        That stings a bit… for some people it stings just a bit too much, so they decide to cut their losses and walk away, same as any other investment. For my part, the ability to re-work my loan in a way that is more affordable would take away a lot of that sting. I can live with the idea that I overpaid for my home as long as I can do something that ultimately makes it more affordable.

        To the people who did everything right and don’t think it’s fair to give someone else a break (not bailout), I can say only this: The situation affects everyone in different ways, but it pretty much universally sucks for everyone in one way or another and will continue to get worse. If we can get past the “it’s not fair to ME because …” arguments and get to fixing the problem we will all be a lot better off.

        • aidenn says:

          @JayDeEm: Thanks for eloquently saying exactlywhat I wanted to.

        • Ingram81 says:

          @JayDeEm: Ok that is quite fine. I will drop the “it’s not fair argument” if we ALL can take advantage of it. If not then you are being discriminatory in your application of benefits that are being paid for by everyone. Just because home prices on the west coast were WAY over inflated doesn’t mean that the people on the east coast shouldn’t be able to get some help, and if they can’t because they weren’t as over inflated, then I can completely understand why they wouldn’t want to help out west coaster’s.

        • god_forbids says:

          @JayDeEm: I have sympathy for your situation. It really sucks that you got burned by this. I almost did the same thing. As to this …

          “For years buying a home was touted as a great investment, not just by tv ads but by friends, relatives and co-workers.”

          When I looked into buying a home I thought of it as just that – a home. The interest rate risk on an investment held to maturity is ZERO. Banks and other financial institutions (and house-flippers) care about rates because their goal is an appreciating investment, not somewhere to live.

          In any case I’m sure you realize now what I saw back then, that homes are not profitable investments and most people are better off renting. In America, homeownership is out of control (60%+) and touted as part of the “American dream” as well as a get-rich semi-quick scheme.

  7. jasonkarns says:

    So the exact policies that got us into this mess are going to be re-enacted in order to save us? What will happen in 2 decades when we’ve had our rebound but the market is on the verge of collapse again?

    • Shadowman615 says:

      @posaune: Refinance policies did not get us into this mess. Lax standards for the original home loans did.

      • crouton976 says:

        @Shadowman615: Not to mention, ever heard of fighting fire with fire? In case you don’t know what the saying means, when fighting a brush/forest fire, in order to keep the fire from spreading, you burn a circle around it so that once the fire reaches what you’ve burned, there is no fuel left to burn and the fire can’t spread. If people who have bad loans that they cannot pay(even if they got them through lax lending standards) can get good loans that they can pay(through lax lending standards), then the banks will be able to get some of their money back. The ultimate goal is to get the banks who own the mortgages some money, any money, rather than the homeowner not paying at all because they don’t have enough to make their mortgage payment. Also, banks don’t want to put the home through the foreclosure process because it costs them money, looks bad on their books and might not sell once they list it. So, like I said, fight fire with fire…

  8. O RLY? says:

    ahh does anyone know if you can refinance student loans? And if so, how exactly does one go about doing this? I’m an early-20-something with little experience with the big bad banks.

    • Matthew Broder says:

      Student loan refinancing is pretty easy as long as your loans aren’t already consolidated to a federal program. There are plenty of companies on the internet that are looking for your business. Before making any commitments remember a few things.
      1. Never pay for anything up front. If the company is legit, they want your business and will be willing to wait to get it.
      2. Research different companies and try to get the best rate/ payment schedule. Sometimes you can use your loans as leverage to get a better rate from another company.
      3. Try the WILLIAM T. FORD Federal Loan Program. The federal gov’t backed loans have a fixed rate (at least in my case) and provide an accelerated payment plan- so you can pay your loan off quicker.

      • Anonymous says:

        @Matthew Broder: Have you tried conacting your lender? Some student loan lenders only allolw you ONLY to consilidate through the company they got loans through. I got a phone call the same lending companies regarding consolidating student loans and later found out I can consolidate only through their company. Find this out before you agree with any company to conolidate, the options and anything else you need .By the way, student loan intrest is tax-deductible.

    • oneandone says:

      @O-RLY: Your university financial aid office may be able to give you some advice – try to get them to walk you through some options.

      If you decide you want to consolidate (which in my case was used to ‘lock in’ my loan rates, rather than refinance), keep in mind that in most circumtances you lose your grace period (time in which you don’t need to pay back your loan). That may or may not be important to you.

      You can usually get discounts on your interest rate from your lender for setting up autopayments (0.25% reduction) and 24 or 36 on time payments (another 0.25% reduction). Sometimes these options aren’t very clear from their websites, so it’s worth calling them.

  9. Anonymous says:

    Sounds like a good idea to me. I’m a lawyer, my wife’s a Dr., we owned a house for 10 years and had about $500k in equity even after the the housing crash, and it took a few months and very creative financing for us to obtain a loan to buy our new house for $1,300,000. Plus, for homes that cost more than $700k, your loan is about 2% higher. If anything, the lower priced homes are the ones with a higher percentage of foreclosures.

  10. cybercjh says:

    “…lower its credit score requirements, reduce the amount of income verification needed and waive the need for appraisals.”

    Wait, wait, wait … isn’t … this … how … we … ended … up … where … we … are … now?

    MY HEAD HURTS!

  11. thetango says:

    Up to a few days ago I heard that the Republicans in the Senate were pushing for a 4.5% (or lower) mortgage rate* to be put into the stimulus bill — anyone know if that happened?

    * For mortgages that Fannie and Freddie could purchase

  12. Borax-Johnson says:

    Here is an even simpler solution. Let’s call it a “pay option adjustable rate mortgage” or maybe just “option ARM” for short.

    We will let the buyer tell us (under penalty of perjury or course) how much they make. Fannie and Freddy wouldn’t verify this because we all trust each other.

    Then, because times are tight, we’ll let you start with, say a 1% interest only payment and let the borrower decide if that’s enough or if they want to pay the full interest only payment (say 4.95%), or maybe even the fully amortized amount. The borrower can decide this.

    Next, since prices are down, let’s let them borrow all 100% of the value of their home. This way everyone wins.

    Oh. Wait. That’s how we got here. Never mind.

  13. Anonymous says:

    “lower its credit score requirements, reduce the amount of income verification needed, and waive the need for appraisals”

    … isn’t this how the states got into the current mess? Don’t check to see if people can actually pay, or if they actually have a house worth that amount. Good job on learning from your mistakes!!

  14. DogiiKurugaa says:

    My parents would love to refinance but through no fault of their own they fell behind on their mortgage and just got 100% caught backup about 6 months ago.

    Basically, the previous company that held their mortgage paid for homeowner’s insurance for the house as a free service. So, it wasn’t added to the amount they paid on the mortgage each month. Then when their mortgage got bought the new company continued to do the same, only they did apply the cost to the mortgage. They then failed to EVER notify my parents of the change. They didn’t find out this had happened until they got a letter basically telling them they had to call and work out a repayment for the $2-2.5k owed or enter foreclosure.

    They claimed they sent them a letter informing of the change, but since they never got it we can’t be sure if they lied to cover their asses or the USPS sucked. And considering this was going on over the course of a year it would’ve been nice that they could have asked what’s up with shorting them money sometime before then.

  15. Verucalise (Est.February2008) says:

    Here’s an idea: Don’t buy a house you can’t afford. I know, it’s a hard concept to grasp.

    We actually “qualified” for a $180,000 mortgage and my husband and I just said fuck THAT. We bought a modest $90,000 house. The mortgage payment is very similar to our previous rental home, and taxes/insurance are quite cheap. (our mortgage payment is $630, escrow included.) Our low mortgage payment allows for a quicker pay off or unexpected home repairs.

    The problem with a lot of these mortgages, (like car payments) is that the monthly payment was dangled in front of buyers without any explanation as to the specifics. People walked into these loans saying “I can only afford $1,000 a month” and the banks happily obliged, even if that meant giving a 7% interest rate or letting the customer pay more than the property was worth.

    Our mortgage is solid, even if mortgage rates dropped to 4%, we wouldn’t seek a refinance. We agreed to these terms and we aren’t hurting to pay our mortgage. You can’t get something for nothing.

    I’m hoping that this generations mistakes are a valuable lesson for the future. Even if predatory banks exist, people should still prepare and educate themselves for what they are getting into and see a shit deal when they are getting one.

    • TaylorBizzle says:

      @verucalise: Where the heck do you live that $90K buys you a modest house????? In New England a modest and I mean modest is anything in the low $300K unless you pay $200K to live in the areas that your lives are at risk. IF you have good credit and you can refinance and save money you would be foolish not to.
      Back to you main point I agree 1000%. Dont buy a house you cant afford. The problem in that statment is that us Americans have grown up to feel “I can have whatever I want and I’m entitled to it”. Bottom Line is one word got us into this mess and its called GREED.

      • Pink Puppet says:

        @TaylorBizzle: Housing prices vary pretty amazingly. I’d say it wouldn’t be too hard to find a modest home for $90K where I live, in a decent neighborhood no less.

        Then again, I live in Ohio. So, uh, yeah, about that…

  16. Plates says:

    Isn’t that the sort of thing that got us into this mess to start with.

  17. Brazell says:

    THIS IS WHAT GOT US INTO THIS PROBLEM.

    Sorry for screaming, but “relaxing standards” from whaT? For the last 15 year, anybody without a job, no ID, no credit history, could get a $250k mortgage… They tighten standards for, what, 5 months after going bankrupt and now reducing standards again?

    Christ.

    • ARP says:

      @MichaelBrazell: Remember, that we’re talking about refi’s vs. new homes. Many of these people are going to lose these homes if they can’t reduce payments.

      Should they lose their homes? Many of them-yes. They bought more than they could afford. Some had medical issues, layoffs, divorces, etc. that they bear some responsibility for, but not all.

      However, the banks have a choice, either go through the forclosure process and lose a lot of money or refi these people and make slightly less money. The banks are chosing the latter. Now some will still default, but even if you can save a significant percentage of them, it makes good financial sense to the bank because they still make money and it doesn’t further depress the housing market.

    • PunditGuy says:

      @MichaelBrazell: Before anyone else screams that this is what got us into trouble, please feel free to peruse any of the dozens of messages above yours, posted well before yours, that explain exactly how this isn’t what got us in to trouble.

  18. Oleg Chetverikov says:

    I think the government should just give free houses to everybody. Think about all the savings. And the best part: NO FORECLOSURES. Everybody wins.

  19. Anonymous says:

    Here is my 2 cents (even though I should be saving them…) My husband and I bought a home in 2007. We spent years saving and paying off student loans etc. When we bought the home we both were employed. My husband is a ‘commision based employee’ (he’s actually a garage door tech and when we purchased our home, he made about $80,000 a year) and I WAS in new home construction (kitchen cabinets to be exact)

    well, last June, I was laid off and my husband lost about 40% of his income due to everyone else having finacial troubles. Neither of these things we were anticipating when we bought.

    Now, we have all the credit cards paid off. Cancelled cable,
    cell phones and have stopped eating out. We have nothing left, it’s pay the mortgage or lights and definately not enough to get anyone in our family heath insurance so pray that no one gets sick!

    We had NO way of expecting any of this to happen. Now we are not irresponsible people (in checking both of our credit reports the other day, we have had no late payments of any kind in 5 years…other then the one mortgage payment we are behind) and no one will help us SLIGHTLY lower our payments.

    Now we are losing our home, and really have no place to go. The last thing we want is a ‘hand out’ I do not believe we have any other choice in any of this. When we bought, (March of 2007) things we good and my employer kept telling everyone how there were contracts on 15,000 homes in the valley all the way through 2011 (sounds like job security huh?) So here we sit, with no place to call home starting next month. Oh, but, the house will sit here vacant (much like my neighbors for over a year) All they need to do to start turning this around is really, and I mean REALLY look at each housing issue seperately. I have heard that the “help 4 homeowners program requires that the gov will own 50% of the equity in each home they help. Sounds like in the end, the tax payers should see a return on this investment. Don’t be so hasty to say “BURN THE SCUM THAT CAN’T PAY THEIR OWN WAY” By letting the gov help, you never know, you could get part of my equity….