Freddie Mac believes that its new seller/servicer guide for mortgage refinancing and underwriting clearly indicates the government-controlled GSE’s new commitment to responsible lending[1]. The new guidelines will come into effect for refinance mortgages with settlement dates on or after May 1, 2011, and include a total elimination of the streamlined refinance mortgage. Currently, streamlined re-fis allow servicers to office loan-to-value ratios as high as 95 percent and also allow closing costs, financing costs and escrows into the refinance mortgage and sellers can provide cash back to the borrower to a limited extent. However, beginning in May, Freddie Mac will no longer purchase these types of flexible-financing mortgages and refi’s.
Additionally, purchase money mortgages will now have to be seasoned. If a buyer uses a purchase money mortgage to buy a property, that buyer will now have to wait 120 days before refinancing if they want a “no cash-out” mortgage. A no cash-out mortgage is a transaction by which an existing mortgage is refinanced for the amount of the existing loan balance plus an additional loan settlement cost. Generally, these mortgages are used to lower interest rates or change the terms. This type of mortgage has developed a negative reputation because most buyers see the positives, lower interest rates and different terms, but fail to note that in some cases the lower interest rate or the change in term can mean that ultimately, more interest will be paid over the life of the loan and that there are additional charges associated with the refi itself.
In addition, Freddie Mac has revamped how properties that have been certified as PACE (property assessed clean energy) and have solar panels and other amenities that reduce energy costs will be evaluated when owners seek a refinancing option.
Do you think that these are good changes? Do they make you feel more confident in the government-controlled GSEs?
Thank you for reading! Your comments and questions are welcomed below.
[1] http://www.dsnews.com/articles/freddie-mac-releases-new-guidelines-for-refinancing-and-underwriting-2011-01-19
Do you think that these are good changes? Do they make you feel more confident in the government-controlled GSEs?
You are kidding with this question right?
In my entire adult life all they have done is gone from one screw up to another, there is not enough time or space to list them all. This will be no different, we will not significantly recover to a stable real estate market until we are rid of the all of the GSEs.
The immediate number of flaws I see with this latest idea are too many to even bother going into.
very nice post, i certainly love this blog, keep on the nice articles.