Freddie Mac to Eliminate Fee on Deeply Underwater Loan Refis

Agence France-Presse/Getty Images
The change is part of an effort to extend the reach of the Home Affordable Refinance Program.

In the latest bid to help homeowners hit by the housing crash, Freddie Mac, the U.S.-supported mortgage giant, is set to drop a fee associated with refinancing deeply underwater loans.

The firm plans to eliminate a fee of 0.5 percentage point, called a “cash adjustor,” on loans refinanced under the Home Affordable Refinance Program with balances greater than 125% of the property’s value, said Paul Mullings, a senior vice president at Freddie Mac. He spoke at a Mortgage Bankers Association conference on Monday.

Dropping the fee represents the latest sign that the government-sponsored enterprises and their regulator are determined to extend the reach of the refi program. Changes last year eliminated the loan-to-value cap and relieved banks of some liabilities that could arise with homeowners willing to default.

Freddie Mac had earlier this year dropped the cash adjustor on HARP refinancings for mortgages with loan-to-value ratios ranging from 105% through 125%, and encouraged the lenders to pass the savings to consumers. (The fee was created to help offset some of the increased risk seen in such refis.)

Mr. Mullings said the change should increase the number of borrowers who tap the program, which was revised last year to boost participation. Already this year, refis under HARP are increasing as a percentage of loans refinanced by Freddie Mac, he said.

“We believe you will see more success but we are very pleased so far,” Mr. Mullings said on the panel, which also included his counterpart at Fannie Mae, Zach Oppenheimer. Mr. Oppenheimer was also bullish on the response to the revised HARP, noting that J.P. Morgan Chase & Co. says it has seen greater-than-expected response to the program.

The fee is being dropped in reaction to changing market conditions, a Freddie Mac spokesman said in an email.

While helping homeowners, constant tweaks to the program have unnerved investors in the mortgage-backed securities that fund the originations. Investors see returns fall when refinancings are faster or slower than expected, so most investors have placed a high premium on bonds backed by loans least eligible for HARP.

Fatal error: Uncaught Exception: 12: REST API is deprecated for versions v2.1 and higher (12) thrown in /home4/jdvc/public_html/wp-content/plugins/seo-facebook-comments/facebook/base_facebook.php on line 1273