Mass Refinance Plan For Non-Conventional Mortgages Proposal in Congress

February 02, 2012 at 2:17 PM

There are several programs being considered as the Obama administration rolls out what was mentioned in the State of the Union address as another recovery program.

The criteria to meet the new loan would be refinanced through the Federal Housing Administration even if the FHA doesn’t already insure their existing mortgage. Other criteria about the new streamlined refinance program include:

  • Eligible borrowers that have mortgages not already owned by Fannie Mae or Freddie Mac (as those are already covered by the recent expanded HARP – Home Affordable Refinance Program)
  • No more than one missed payment during the past year
  • No tax returns or appraisals would be required, though employment must be verified. Unemployed borrowers will only be considered if they meet the other underwriting requirement.
  • The minimum FICO score will be 580 – a requirement that administration says 9 out of 10 borrowers meet.
  • Maximum loan amounts would be based on existing FHA loan limits, which range from $271,050 to $729,750.
  • Loan-to-Value ratios would be limited to 140 percent.

The administration expects borrowers to save an average of $3000 a year from the refinance initiative, while lenders will pick up the estimated $5 billion to $10 billion for program costs.

The savings to homeowners will be through choosing shorter loan terms. If the borrower chooses a shorter 20-year term, then Fannie, Freddie, or FHA will pay the closing costs. The president also outlined a proposal for legislation that would further streamline the refinance process for borrowers whose loans are owned or guaranteed by Fannie or Freddie. This plan will eliminate the appraisal costs on HARP loans through mark-to-market accounting and other alternative when automated-valuation models won’t work.

Other initiatives outlined cover-converting real estate owned properties into rentals and a homeowner’s bill of rights. This bill of rights will provide simplified mortgage disclosure form, prohibit hidden fees and provide guidelines that prevent conflicts of interest. The Consumer Mortgage Coalition is scrutinizing this document. They released a statement indicating that they are “very pleased that the president is so committed to simplifying mortgage disclosures.” The scrutiny comes with the Consumer Financial Protection Bureau (CFPB), which provided drafts of a new disclosure that does not work with existing disclosure rules.

In a statement, Mortgage Bankers Association President and CEO, David H. Stevens, said that they support at nation single set of standards. He noted that such standards could help provide confidence and certainty in the real estate market for borrowers, lenders, and services alike.