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Freddie Mac Ends Streamline Refi Come Spring

This article was originally published for ML-Implode Premium subscribers on February 15th, 2011.  To join and receive exclusive content, click here.

The Federal Home Loan Mortgage Corporation (FHLMC), more known as Freddie Mac, will no longer offer its streamlined mortgage refinancing option this coming spring, the lender recently announced.

In their Bulletin Number 2011-2 released last January 18, 2011, Freddie Mac, along with other changes, announced to sellers that after May 1, the lender would “no longer purchase Freddie Mac-owned streamlined refinance mortgages.”

Borrowers can still get the same benefits of the streamlined refinance mortgages through the Relief Refinance option, Freddie Mac’s take on the government-supported Home Affordable Refinance Program (HARP) introduced in February 2009. The HARP is among the programs supported by the umbrella program, Making Home Affordable (makinghomeaffordable.gov).

The streamlined refinance program reduced the interest rates and first-lien amortization terms of qualified mortgages, aside from replacing adjustable rate mortgages (ARMs) with fixed-rate terms. The program covered mortgages that had suffered only one delinquent payment.

“I don’t think it could be read as a curb on a borrower’s options for a refinance,” explains Freddie Max spokesman Brad German. He commented that the streamline refinance was “sort of overtaken by events” with the Relief Refinance.

After the expiration of the streamlined refinance mortgages, all Freddie Mac mortgage programs will undergo funds verification before approval, except for Relief Refinance — Same Servicer option.

Analysts at the Bank of America-Merrill Lynch said the streamlined refinance program “has had a meaningful impact on Freddie speeds in the 2009 and 2010 vintages.”

Homeowners who have mortgages owned by Freddie Mac can refinance through the streamline refinance and the Relief Refinance — Same Servicer options without the need to issue proofs of income or records of employment. These programs are especially helpful for homeowners who have reduced incomes, and thus see the need to refinance their mortgages to take advantage of lower interest rates.

Although both programs do not explicitly state it, homeowners who wish to apply for refinancing need to have their properties appraised. The streamline refinance and the Relief Refinance — Same Servicer options require that sellers of new loans certify that the properties at stake have retained their original appraised value, effectively excluding mortgages that have gone underwater.

On the other hand, homeowners with mortgages backed by the Federal Housing Administration and the Department of Veterans Affairs can apply for refinancing without having to submit new appraisals. Thus, despite reduced property values, these homeowners can refinance their existing mortgages that have gone underwater.

The Relief Refinance option, being part of the HARP, enables homeowners to refinance their mortgages by as much as 125 percent of the current values of their properties. Homeowners with underwater mortgages can avail of this option, but they have to undergo appraisal of their existing properties.

Homeowners who run out of options can apply for refinancing under Freddie Mac’s Relief Refinance — Open Access program. Refinancing an underwater mortgage can be done through any lender, but the applicant must undergo the whole process and fully qualify for a new loan.

Freddie Mac, a government sponsored enterprise, was created by the U.S. Congress in 1970 to engage the secondary mortgage market by buying and pooling mortgages, selling them to investors as mortgage-backed securities.

This comment was contributed by Erik at MortgageLoan.com. Erik has been a financial writer for five years. He has written for insurance companies, mortgage brokers and several online financial news sources. Currently, he is a contributing writer for MortgageLoan.com.

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