Following in the steps of Fannie Mae, Freddie Mac has eliminated a major restriction to borrowers seeking to refinance with existing servicers.
Beginning yesterday, borrowers now have no credit score requirement for refinancing, as long as they have at least 20 percent equity in their home, according to a HousingWire piece on the new guidelines.
The lifting of the restriction (borrowers previously needed a credit score of 620 or above to refinance) is just the latest in a multi-faceted government campaign to increase homeowner’s abilities to refinance, and, in the process, take advantage of historically-low interest rates.
Beginning in October, the Federal Housing Finance Agency instructed both Fannie and Freddie, which it regulates, to heighten the impact of the government’s Home Affordable Refinance Program and remove barriers to homeowners. That, in part, motivated Fannie’s aforementioned decision in December to eliminate determinations from lenders on whether borrowers could repay their loans.
In addition, several Senators directly appealed to President Obama in November, sending the president a letter urging greater amicability with struggling homeowners.
“Not only is this an issue of fairness, but applying these measures to higher equity borrowers makes good business sense,” read the letter.
According to HousingWire’s article, roughly 4 million Fannie and Freddie loans are underwater, and Freddie’s latest move would appear to apply to the vast majority of homeowners who have sought refinancing. In September 2011, for instance, FHFA stats show that 263,700 GSE mortgages were refinanced, an increase of more than 66,000 from August. Of those refinancings, nearly 230,000 were for homeowners with 20 percent equity in their homes.