Fannie Mae and Freddie Mac made big news late last month when the companies announced that would soon be offering a new refinance program targeted at the millions of low-income families that did not “take advantage” of last year’s record low mortgage interest rates.
However, when the programs were announced, neither Fannie nor Freddie revealed when the programs would actually be available. Instead, the companies stated simply that the programs would begin “this summer.”
But now, we know exactly what “this summer” means, as both Fannie and Freddie announced this week when their version of new refinance program will start. And it turns out, the programs are not starting on the same day.
Fannie Mae’s version of the program, which it calls “RefiNow,” will be available beginning June 5, 2021. Freddie Mac’s version of the program, which it calls “Refi Possible,” will be available on August 30, 2021.
Both programs are designed to benefit those who make at or below 80% of the area median income refinance their existing mortgage into one with a lower interest rate and a lower monthly payment.
When the new refinance program was first announced, Federal Housing Finance Agency Director Mark Calabria said that by refinancing, eligible borrowers could save between $1,200 and $3,000 per year on their mortgage.
With both programs, homeowners would see their mortgage rate reduced by at least 0.50% and a reduction of at least $50 on their monthly mortgage payment. The program also provides borrowers with a $500 credit for an appraisal if one is obtained as part of their refinance.
The program is only available to borrowers whose mortgages are owned by either Fannie Mae or Freddie Mac, but borrowers who have a Freddie Mac mortgage may be eligible for an added benefit.
As part of its Refi Possible program, Freddie Mac is offering borrowers the ability to “roll up to $5,000 in closing costs into their mortgage,” which will help those with “limited cash to close.”
As for why Fannie and Freddie are rolling out the new programs, Freddie Mac said that its research found a “significant difference” in refinance activity between low-income borrowers and high-income borrowers.
“High-income households saved ten times more than those with lower incomes by refinancing more frequently,” Freddie Mac said in its announcement. “And while many Black and Hispanic homeowners have a financial incentive to refinance their mortgage, they do so at substantially lower levels than White homeowners.”
Enter these new programs, which are targeted at low-income borrowers.
“Lower-income borrowers typically refinance at a slower pace than higher-income borrowers, potentially missing an opportunity to save on housing costs,” said Malloy Evans, Senior Vice President and Single-Family Chief Credit Risk Officer, Fannie Mae. “Fannie Mae’s new RefiNow option will help more homeowners refinance by removing some of those barriers, improving affordability, and promoting sustainable homeownership.”
To qualify for the new refinance option, a borrower must:
- Have a 1-unit single-family mortgage that is backed by Fannie or Freddie and is owner-occupied
- Have an income at or below 80% of the area median income
- Have not missed a payment in the past six months, and no more than one missed payment in the past 12 months
- Not have a mortgage with a loan-to-value ratio greater than 97%, a debt-to-income ratio above 65%, or a FICO credit score lower than 620
“Refi Possible could help over a million homeowners with a Freddie Mac-backed mortgage by making it easier for them to refinance,” said Pamela Perry, Single-Family Vice President of Equitable Housing at Freddie Mac. “We are continuing communications and outreach to a broad group of organizations and community groups so that those eligible can take advantage of this program to realize the savings and wealth-building benefits of refinancing.”
For borrowers with a Fannie Mae mortgage, the program begins on June 5, while borrowers with a Freddie Mac mortgage will have to wait until August 30.