To help more borrowers take advantage of historically low mortgage interest rates, the Federal Housing Finance Agency today announced a new refinance option for low-income borrowers who have single-family mortgages backed by Fannie Mae or Freddie Mac. Borrowers that take advantage of this option could save an average of between $100 and $250 per month, FHFA said.
Under the new option, the lender must provide a savings of at least $50 in the borrower’s monthly mortgage payment and at least a 50-basis point reduction in the borrower’s interest rate and provide a maximum $500 credit for an appraisal if the borrower is not eligible for an appraisal waiver. It also allows for a waiver of the 50-basis point “adverse market refinance fee”—a controversial fee imposed by FHFA on refinance transactions that was strongly opposed by ABA—for loans that have balances under than $300,000.
“Our primary concern has always been that the refinance fee negatively affected borrowers, particularly lower-income borrowers,” said ABA SVP Joe Pigg. “We welcome this action by the FHFA which will limit the scope of homeowners impacted.”
To qualify for the new refinance option, a borrower must have an enterprise-backed, one-unit single-family mortgage that is owner-occupied; have an income at or below 80% of the area median income; have not missed a payment in the past six months, and no more than one missed payment in the past 12 months; and not have a mortgage with a loan-to-value ratio greater than 97%, a debt-to-income ratio above 65% or a FICO score lower than 620.
