Freddie Mac to Ease Underwriting Restrictions Allowing for Easier Refinancing

Freddie Mac will ease its mortgage underwriting formula in attempt to aid more homeowners in the refinancing process. When the Home Affordable Refinance Program was revamped in March 2012 the changes were intended to make it easier for homeowners who are current on their mortgage to refinance and secure a lower interest rate.  Participating lenders have complained that approval of Fannie Mae backed loans far exceeds the approval rate of Freddie Mac backed loans.

The recently reformatted program, often referred to as HARP 2.0, intended to make refinancing easier, available to more homeowners, and spur competition between lenders for these new customers.  The issue most lenders are complaining about is the rate at which Freddie Mac loans are being approved for refinancing as compared to loans through Fannie Mae.  In response to this, Freddie Mac is altering their underwriting process.  Specifics of the new process have not been released, but according to officials at Freddie Mac homeowners who were previously turned down for the program may now qualify. The current automated system consistently places undeserved caution warnings on credit reports, which in turn leads the banks to stay away from these homebuyers, hindering them from refinancing.

During the fourth quarter of 2011 about 22.8 percent of homeowners were upside down on their mortgages, according to data released by CoreLogic.  HARP loan originations are up about 93 percent from 2011’s fourth quarter to this year’s first quarter. Of these, only about 21 percent of the borrowers were more than 5 percent underwater. Bank of America alone has received over 30,000 applications for refinancing over the past month. But many of these applicants will not reach approval, and consumers are frustrated.

The goal of HARP 2.0 was to increase availability, increase competition between lenders, and reach more high loan-to-value mortgages. The good news is that the volume of refinances is up, but the bad news is that the other two initiatives have not succeeded. Lenders have received considerable demand for refinances, but most large banks are only serving current customers, leaving many helpless. The new program has also failed to acquire higher loan-to-value mortgages. Freddie Mac is aiming to solve these two issues through easing current restrictions in the underwriting process, in attempt to make mortgages more appealing for lenders to take on and refinance.

Freddie Mac’s changes should enable some borrowers who were previously rejected for HARP to now qualify, although officials at Freddie Mac encourage these people to wait a couple weeks before reapplying.

Click to see HARP 2.0 Eligibility

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