Are the new Fannie Mae and Freddie Mac "Refi Plus" programs working?

It's been about 3 weeks now since Fannie Mae and Freddie Mac rolled out their "streamline" refinance programs they had first discussed at the beginning of February. These programs are intended to make refinancing to today's rates easier for homeowners by lowering documentation and credit requirements, and by allowing refinancing at higher loan-to-value ratios than are permitted under normal guidelines. Some key benefits of this program for current homeowners include:

• Refinance at up to 95% (soon to be 105%) without PMI

This is big for those who originally had 20% equity as they are practically guaranteed no PMI

• Reduced appraisal requirements

Drive-by appraisals and Automated Valuations (AVMs) are very common

• Many rates under 5%

Actual rates depend on exact qualifications, but there are some truly low rates out there

These benefits help open up the possibility of a refinance that makes sense for many borrowers who have been on the sidelines, tantalized by low rates, but frustrated with declining home values. Unfortunately, there are many borrowers who are not yet eligible for this program; fortunately, there are new options being opened up shortly that may increase the usefullness of this program, including:

• Options to port a homeowner's existing (usually lower-cost) PMI certificate to a new loan

PMI has become very expensive in 2009 due to risks faced by issuers, but keeping old PMI saves big

• 105% options

For those who can't refinance at 95%, a few banks are already offering 105% and more will follow

This program is limited, though. First, to even qualify for consideration, a borrower's loan has to be securitized or owned by Fannie Mae and Freddie Mac. There are simple websites established by these government-sponsored entities that allow borrowers to look up their loans; alternately this can also be accomplished by their mortgage advisor.

The Office of Federal Housing Entity Oversight (OFHEO) which is operating Fannie and Freddie right now made a significant error in allowing its charges to design their own programs. This has led to significant discrepancies in the two programs, most notably that Fannie loans can close anywhere, while Freddie loans may only close at the existing loan servicer. This can lead to a lot of confusion for borrowers trying to make their situations a little easier in these difficult times.

In spite of the promise of this program, this option does not approach the elegent simplicity of the FHA streamline refinance. Under that program, FHA assumes that since it is already going to be paying out on insurance in the event of default, why not make it easier for borrowers to make their payments by giving them access to lower rates without having to go through an appraisal, or document income. This can even work for borrowers who have lost income and might not otherwise qualify; when income is recduced to an unemployment check, saving a couple hundred dollars per month on the mortgage goes a long way.

From what I've seen in new applications so far, it's looking a little better than the infamous "HOPE for Homeowners" program (which is still working on funding its 2nd loan), but not much. Many borrowers who haven't already refinanced owe significantly more than 95% on their homes due to recent depreciation. Hopefully the upcoming changes will allow this program to truly accomplish its goals, but if not, it may be back to the drawing board at OFHEO.

Dan Hartman is a Senior Mortage Advisor at Province Mortgage Associates, and serves as an Adjunct Professor of Finance at Roger Williams University and the University of New Haven. You can reach Dan by commenting on this article, or by phone at (401) 263-8655.