Low-income homeowners who may have missed out on last year’s refinancing boom are to be given a second chance, the Federal Housing Finance Agency has said.
This week, the FHFA announced an upcoming program for low-income homeowners with government-backed mortgages to refinance at a lower rate in order to reduce the amount they have to pay back each month.
FHFA said the program is aimed at single-family homeowners with a mortgage backed by Fannie Mae or Freddie Mac. It said that borrowers who refinance using the program could save as much as $100 to $250 per month on their loan repayments.
Borrowers must earn 80% or less of the median income for the area they live to be able to qualify. Other conditions stipulate that borrowers must be up to date on their mortgage payments, with no missing payments over the previous six months. In return, the FHFA said credit standards have been eased for applicants and that some fees have also been waived.
FHFA Director Mark Calabria said that last year saw a big spike in home loan refinancing as interest rates fell to record lows. But, he said, more than two million low-income families were unable to take advantage of the trend because they didn’t earn enough.
“This new refinance option is designed to help eligible borrowers who have not already refinanced save between $1,200 and $3,000 a year on their mortgage payment,” Calabria said.
The FHFA program requires lenders to provide a minimum 50-basis point reduction in the applicant’s interest rate. In addition, it also provides up to $500 credit from the lender for an appraisal if the applicant is not eligible for an appraisal waiver, the FHFA said.
The program is expected to launch by the summer.