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Conventional Home Refinancing with Freddie Mac

Conventional home refinancing enables homeowners to refinance with a low rate while considering cash back options. In a press release of February 2008, Freddie Mac announced that it's expanding its use of risk-based pricing and increasing fees on mortgages with higher risk and will discontinue purchases of some higher-risk mortgages altogether which is due to continued deterioration of credit quality and declining home values.

Freddie Mac will no longer purchase:

  • Mortgages with loan-to-value ratios great than 97 percent, with the exception of FHA/VA mortgages and Home Possible mortgages in which borrowers have credit scores of 700 or better.

  • "Alt 97" mortgages with "Affordable Seconds". Affordable Seconds are no longer an acceptable source of borrower funds.

  • Streamlined purchase for homeowners mortgages.

  • Freddie Mac will require a 5 percent reduction in the maximum TLTV ratio when the property is located in a market with declining values.

  • First-time homebuyers applying for a loan through Freddie Mac's "Home Possible" program will be required to take a homeowner education class and all loans with a LTV ratio greater than 97 percent must have a credit score of 700 or better.

Even with the temporarily increased conforming loan limits put in place by the Economic Stimulus Act of 2008 and the permanent limits put in place by the newly-passed Housing and Economic Recovery Act of 2008, the concern among investors is not easing due to the challenges with increasing defaults rates. Even loan amounts less than $417,000 are met with increasingly strict lending requirements for conventional home refinancing and purchase loans. As a result home loans that meet the underwriting guidelines put forth by Freddie Mac are becoming fewer and farther in between.

The loss of market share from FHA to Freddie Mac because of the housing boom in 2004 is showing signs of reversing with record level FHA loans that have taken place recently, as reported by Housing Wire article entitled Ginnie Mae Setting Historic Pace in August. According to this article, Ginnie Mae, whose securities are largely FHA loans, is gaining ground on Freddie Mac and Fannie Mae.

The article goes on to report the following:

The explicitly government-backed mortgage operation soundly trumped Freddie Mac (FRE: 5.28 -9.74%) in fixed issuance during July, a milestone that few market participants seem to have noticed: $24.9 billion was issued via Ginnie during the month, compared to $20.3 billion at Freddie. It was the first time Ginnie's fixed issuance had been above either Freddie or Fannie Mae (FNM: 7.07 -10.62%) in recent memory, and certainly the first time in the fours years' worth of data reviewed. To-date in August, Ginnie Mae's fixed issuance is ahead of both better-known GSEs (government-sponsored entities). According to eMBS' data, Ginnie Mae has issued $25.3 billion to date, while Fannie and Freddie have issued $24.0 billion and $16.5 billion, respectively.

The Economic Stimulus Act of 2008 also allowed FHA to temporarily raise its loan limits. They were raised from $362,790 to $729,750 in some areas of the country. The new housing laws allowed a permanent raise of the conforming loan limits to a maximum of $625,500. Unlike the troubled GSEs, Freddie Mac and Fannie Mae, Ginnie Mae is benefiting from the increased loan limits because, as further reported by the article, in the four months since Ginnie Mae rolled out its new jumbo loan product, issuers have securitized $17 million in April, $331 million in May, $1.089 billion in June, and $1.470 billion in July of FHA's jumbo loans.

Are you looking to purchase a home or refinance your existing mortgage loan? Now is the time to seriously consider FHA. Their loan qualification criteria are a lot less stringent than conventional loans. FHA doesn't have any FICO credit score criteria, either. If you have a good payment history of at least 12 months and can prove the ability to pay back the loan, you are eligible for a FHA loan. Fill out the free loan quote form on this page or give us a call.


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