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Mortgage Refinances to 125 Percent Loan-To-Value Ratio Start Today

By Ilyce Glink | Jul 1, 2009 |

That didn’t take long. The Federal Housing Finance Agency (FHFA) issued a quiet press release today announcing that Fannie Mae and Freddie Mac would now accept refinancing with 125 percent loan-to-value ratios.

So if your house is worth $100,000, but you owe $125,000, and your loan is owned or guaranteed by Fannie Mae or Freddie Mac, you’ll be able to refinance your mortgage to what is hopefully a lower interest rate.

Today’s announcement comes in the wake of the Washington, D.C. meeting of the National Association of Real Estate Editors, during which HUD Secretary Shaun Donovan was asked what FHFA was planning to do now that home prices have fallen so much that millions of homeowners no longer qualified to refinance their mortgages under the President Obama’s Making Home Affordable Plan. He told me that discussions were underway about the issue and the home loan-to-value ratio being talked about was 125 percent.

Home values have been slammed in this housing and credit crisis. Home values dropped again last month and economists believe home values will sink an average of 40 percent before turning the corner. It has become clear that not enough homeowners can refinance because the loan-to-value ratio of 105 percent was too low.

FHFA Director James Lockhart said that the 125 percent loan-to-value ratio would allow more people to refinance. The program is also trying to sell homeowners on the idea that they should look into loans with shorter loan terms, such as a 15-year, 20-year, or 25-year term rather than another 30-year mortgage. Not only will the interest rate be less than for a 30-year loan, but homeowners will get rightside up on their loans faster.

Unfortunately, today’s press release doesn’t discuss how lenders are going to increase their capacity to deal with the massive wave of refinancings and loan modifications, or how the federal government is going to buy enough bonds to get the mortgage interest rate below 5 percent again to stimulate the housing market. And, we still don’t know whether HUD will work with Treasury to either extend the $8,000 first-time home buyer tax credit, or perhaps adopt Sen. Johnny Isakson’s idea for a $15,000 federal tax credit that is available to all home buyers, regardless of income.

Then again, it’s a holiday week.

Read More:

Want to Refinance Your Loan? Home Loan-to-Value Ratio May Climb to 125 Percent

Can’t Refinance Under Making Home Affordable? Try This

HUD Secretary Shaun Donovan Says Maybe to $15,000 Home Buyer Tax Credit

 
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  •  
    1

    Ilyce Glink

    07/01/09 | Report as spam

    RE: Mortgage Refinances to 125 Percent Loan-To-Value Ratio Start Today

    From Paul, one of my FB friends:

    Seriously. The insanity that caused this insanity continues, I see..."

  •  
    2

    Ilyce Glink

    07/01/09 | Report as spam

    RE: Mortgage Refinances to 125 Percent Loan-To-Value Ratio Start Today

    @Paul:

    It does seem totally insane. Unfortunately, if the government doesn't find a way to help turn the tide on the foreclosures, defaults and home price declines, it'll take much longer to work out our economic problems.

    One issue I see is that if people lock in for 30 years at 5 percent (or less), they'll be much less likely to pick up and move. It'll have to be a great reason. But fewer moves mean fewer sales, fewer loan originations, and less money getting pumped overall into the economy.

    Thanks for your comment

  •  
    3

    Ilyce Glink

    07/01/09 | Report as spam

    RE: Mortgage Refinances to 125 Percent Loan-To-Value Ratio Start Today

    From Barb, a FB friend:

    When does the madness stop?

  •  
    4

    Ilyce Glink

    07/01/09 | Report as spam

    RE: Mortgage Refinances to 125 Percent Loan-To-Value Ratio Start Today

    @Barb:

    I'm not sure. If this doesn't help enough people to refinance and keep their homes from falling into foreclosure, I'm not sure what else will.

    Oh, that's right - other than jobs.

  •  
    5

    Ilyce Glink

    07/01/09 | Report as spam

    RE: Mortgage Refinances to 125 Percent Loan-To-Value Ratio Start Today

    FB Friend Mark says:

    Housings a bad investment now. Best to cut my losses.

  •  
    6

    Ilyce Glink

    07/01/09 | Report as spam

    RE: Mortgage Refinances to 125 Percent Loan-To-Value Ratio Start Today

    From Ali:

    "The few Million jobs would help but, who would that few million be is my Question. I think we are done but, I could be wrong. I know GOD will be right."

  •  
    7

    ja1515

    07/01/09 | Report as spam

    RE: Mortgage Refinances to 125 Percent Loan-To-Value Ratio Start Today

    i wonder how many people will be able to get through the red tape and actually get some help from this. or how many people they even expect to have the capacity to help. seems a little odd to make such an announcement just before a holiday weekend when people aren't really paying attention to the news

  •  
    8

    Ilyce Glink

    07/01/09 | Report as spam

    RE: Mortgage Refinances to 125 Percent Loan-To-Value Ratio Start Today

    I think we are not done yet with home value declines. Too many people are unemployed. The stock market has zoomed up but why? Let's see what the fall brings. I do think in a year from now we'll be in a better place. Maybe even 9 months down the line.

  •  
    9

    Ilyce Glink

    07/01/09 | Report as spam

    RE: Mortgage Refinances to 125 Percent Loan-To-Value Ratio Start Today

    @ja1515

    I agree. Not sure what the strategy is, other than it's the start of the 2nd quarter, and it's the first of the month. They might also already know what's coming down the pike in terms of more house price declines. They can also see the trend lines. The question is, how quickly will the banks get up to speed?

    And, to your point, will the banks have the capacity to help? I'm just not sure they do, although loan modifications overall were up 50 percent in the most recent quarter.

    Thanks for your comment.

  •  
    10

    coolhandluke2

    07/02/09 | Report as spam

    RE: Mortgage Refinances to 125 Percent Loan-To-Value Ratio Start Today

    There is a site that quietly teaches people to get mortgages at a much lower interest rate and save you thousands. www.slickbudget.com is seriously a site to make people some cash with no sign ups.

  •  
    11

    Ilyce Glink

    07/02/09 | Report as spam

    RE: Mortgage Refinances to 125 Percent Loan-To-Value Ratio Start Today

    From FB Marla:

    Ilyce - The main failure with these programs, whether the maximum LTV is 105% or 125% is that the holders of the 2nd mortgages are not agreeing to resubordinate with the CLTV over 100%. At the time many of these loans were originated, it was very common to take a first and second mortgage to avoid the pmi. Have you heard any ideas on getting the 2nd lenders on board?

    Marla: There is a coordinating program for second lenders that pays them a hefty fee to resubordinate their loan. I heard from the feds when I was in DC that they recognize that second lenders have been problematic. They've tried to solve it, but it's still a voluntary program all the way around.

  •  
    12

    Ilyce Glink

    07/02/09 | Report as spam

    RE: Mortgage Refinances to 125 Percent Loan-To-Value Ratio Start Today

    @coolhandluke2

    You know, I was going to compliment you on your list of available coupons. Except when I went to click on them, nothing came up.

    Folks, stay away from the site @coolhandluke 2 is recommending.

  •  
    13

    Irish Life

    07/11/09 | Report as spam

    coolhandluke2

    It surprises me that a professional would tell people to stay away from a site dedicated to helping people with no catch! The guy is a teacher who has been helping people most of his life. He does not even make you sign up to take advantage of the deals. Some of the coupon links expire and that is dealt with on a constant basis. Most of the links function perfectly for me. The site actually is updating coupons today. Why did you tell people to stay away? Just curious.

  •  
    14

    Ilyce Glink

    07/13/09 | Report as spam

    RE: Mortgage Refinances to 125 Percent Loan-To-Value Ratio Start Today

    @coolhandluke2

    The site seems like a scam site to me. I spent quite a bit of time there, clicking around, and the links don't take you anywhere. I don't know anything about the site - there isn't any good information on the site, so I take the cautious route because I hear from thousands of people each year who are scammed. If someone wants to provide me with additional information and links as to who this guy is and what his site does, I'll take a look.

    Thanks for your comments.

  •  
    15

    mb4574

    07/24/09 | Report as spam

    RE: Mortgage Refinances to 125 Percent Loan-To-Value Ratio Start Today

    Ahh the Government at work. I have worked hard all my life, but was dumb enough to believe my mortgage company knew what they were talking about when they talked me into an ARM. Now the ARM has decreased due to the economy, but will eventually go up. When it does I will lose my house. Or if my wife takes ill again (good probablity) I will lose my house.
    Where is the Government trying to help those of us that are barely hanging on? I can't apply for a rate reduction until I have missed 2 payments, yet, because I've paid more than necessary for most months, I'm being penalized by the mortgage company. Where is that Government help?

  •  
    16

    Ilyce Glink

    07/24/09 | Report as spam

    RE: Mortgage Refinances to 125 Percent Loan-To-Value Ratio Start Today

    @mb4574

    I'm feeling for you, MB. My 5/1 ARM has decreased because of the economy - and I think it will likely stay there for a year or two. When it goes up, the rise should be limited to 1 or 2 percentage points. Your overall rate should be limited to a maximum rise of 5 or 6 percentage points from the initial start interest rate.

    When the loan adjusts, all of the cash you've prepaid on your loan should help, because your loan will adjust based on the principal you have left - not what you originally took out. So if you took out a $100,000 loan and now have $80,000 left on it, when the loan adjusts, it will be on the $80,000 amount, not the higher amount.

    While that may not entirely wipe out an increase in payment, it should mitigate it somewhat.

    You shouldn't have to be late to get help. Don't go late on your mortgage because someone told you that you'll qualify for help. It isn't true. What might be better is to simply apply for a new loan elsewhere. If that costs you more, then you should stay with your loan for the moment (the interest rate is extremely low) and figure out your next step.

    More importantly - I hope your wife stays healthy and that you get to enjoy your retirement years together.

    Thanks for your comment. Let me know what happens.

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