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FHFA Expands Eligibility for Refinance Programs Restores Desktop Appraisals

The FHFA expands income eligibility requirements for Freddie Mac and Fannie Mae refinance programs and revives desktop appraisals.

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Moderate-income homeowners will soon have more options to refinance their mortgages to reduce their interest rate and monthly payments.

The Federal Housing Finance Agency (FHFA) is expanding the eligibility requirements for the RefiNow and Refi Possible programs to include borrowers making at or below 100% of the area median income (AMI). Previously, these programs were only available to low-income borrowers making at or below 80% AMI.

The biggest benefit to these programs is that they offer up to a $500 appraisal credit, if an appraisal is required for the refi. This makes refinancing more affordable by reducing closing costs.

The change expands eligibility beyond low-income borrowers to include some moderate-income borrowers. For example, in Nashville, Tenn. the new guidelines include borrowers making $16,460 more than the previous threshold.

Area Median Income Previous threshold: at or below 80% AMI New Threshold: at or below 100% Difference in income

RefiNow and Refi Possible are available to borrowers with single-family mortgages backed by government-sponsored enterprises Fannie Mae and Freddie Mac.

The FHFA also announced modifications that would reduce “operational frictions” for lenders. That includes eliminating the requirement that the monthly payment must be reduced by at least $50. The new guidelines allow for any reduction to monthly payments.

The new guidelines also remove a 10-year seasoning -- or waiting period -- included in the original program.

In an address at the 2021 Mortgage Bankers Association Annual Convention and Expo, FHFA Acting Director Sandra Thompson said the agency “found that there was actually a drop in the share of refinance loans made to borrowers below 100 percent of AMI” during the recent refi boom driven by low interest rates.

“This should be an urgent priority, as we are seeing significant numbers of lower income and minority Enterprise borrowers stuck in rates 30 to 60 percent higher than the current average,” Thompson said. “There are even a surprising number of Enterprise borrowers who have been diligently paying the mortgages they received in the 2000s but are still having to pay rates of more than 6 percent.”

Enterprise borrowers are those with loans owned by Fannie Mae and Freddie Mac.

The full raft of changes will be in effect by January 2022, although a firm date has not been set. That’s none-too-soon as major housing authorities -- including Fannie Mae and Freddie Mac -- are forecasting mortgage rates to rise in 2022.

Desktop appraisals are here to stay

Along with updates to its refinance programs, the FHFA also announced that it is adding desktop appraisals to its selling guide in 2022. A desktop appraisal is a home valuation made remotely using information from tax records and real estate listings.

Desktop appraisals were put in place early in the pandemic to allow appraisers to work remotely through lockdowns. This option expired in 2021 along with other short-term COVID flexibilities that kept the mortgage industry running.

Thompson said the decision to restore desktop appraisals was a result of reviewing data and feedback from industry professionals. This tool is especially helpful in rural areas where appraisers cover more territory.

“This certainty should allow lenders, borrowers, and appraisers alike to take advantage of the efficiency gains that desktop appraisals can provide and to continue the work of making our mortgage finance system more effective,” Thompson said.

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