The Freddie Mac Relief Refinance Mortgage a Journey to Lower Payments

Underwater House

13 comments

in Mortgage

If you’ve been around FiscalGeek for a while you may remember back to a post I wrote in the early days on the Making Home Affordable program and my pending refinance. Well things went horribly trying to utilize the program and I eventually abandoned the whole process and vowed to stop doing business with Wells Fargo see my guest rant at The Centsible Life. When I initially was looking to refinance I contacted a broker at the recommendation of a good friend. By the way this is one of the best ways to find a good mortgage broker. We talked for a bit and due to the questionable value of my house versus what I owed he didn’t recommend going forward as I would be out my appraisal fee without much chance of refinancing. I tried Wells Fargo it went wrong and I forgot about the whole thing. Well a couple of months ago Brad at Coulombe & Evered gave me a call to check in and mentioned that he might be able to help us refinance after all with some of the more formalized programs. So I said great and we got started initially trying a standard refinance.

Not so Favorable Appraisal


Well we got going on the process and as I had sort of expected the appraisal of our house come in under the combined total of our first and second mortgages so a traditional refinance was out of the question. So Brad started exploring the Freddie Mac Relief Refinance Mortgage as my mortgage was a Freddie Mac mortgage. Initially these programs only worked directly with your original mortgage lender. Since I had such a bad experience trying that before I was happy to work with someone who was interested in customer service. The Freddie Mac program has an Open Access opportunity that lets you work with any Freddi Mac approved seller/servicer.

How the Program Helps


The Freddie Mac program allows you have a mortgage LTV (loan to value) ratio of up to 125 percent. So for instance if you had a home with a $350,000 mortgage but it was only worth $300,000 it has a LTV ratio of $350,000/$300,000 or 116.66%. I was able to squeak in with those qualifications. This lets you take advantage of historic low mortgage interest rates. Ah but there is a catch.

Caveats and Pitfalls with the Freddie Mac Relief Program


Like most any government program it’s not a simple process. I began this journey just over 2 months ago and we sign the papers this afternoon. In many ways you are at the mercy of your mortgage lender, in my case we had to get Wells Fargo to agree to subordinate my 2nd loan with a new first mortgage and the best way to do that is replace my first with yet another Wells Fargo mortgage. As much as that hurts to keep using Wells dropping over a whole percentage point and taking my mortgage payment down $250 a month is worth it.

The other issues have to do with the minimums you can lump into your new mortgage. You can rollover a maximum of $5000 in closing costs which include the closing costs, financing costs and prepaids/escrows. The escrow and prepaids alone are very high because my area has crazy property tax rates so I’m right on the edge. I was going to have to bring in cash to the closing for the difference but my broker took off some fees to cover it. It’s ridiculous to think of a program to help out homeowners that requires them to show up with cash. I’m probably an extreme case and most won’t hit this issue.

Interest Rates Slightly Higher


The other issue with the Relief program is my interest rates are not as good as they would have been with a traditional refinance. Don’t get me wrong 5.25% is fantastic but the going rates for convention 30 year loans right now is 5.00% in my area. So I’m eating a quarter of a percentage point with the program. Sure it’s a relief program why wouldn’t it be higher.

Why Wells Fargo continues to Suck


Wells has not helped this process at all and as part of the refinance for some strange reason to make things look right on their balance sheets they are requiring that we pay down our second mortgage by $900 at the time of closing. Now I’m fine with paying down on debt that I’m going to be attacking anyways after we pay off our car, but again not so helpful to be bringing in additional cash to use a relief program. I think it was done out of spite.

Still Happy to be Saving Money


After all of my complaining I’m happy to be able to take advantage of much lower monthly payments and I’m using every extra cent to continue to throw at our debt, our refinance will pay for itself in just under a year so it was definitely worth the effort. You might want to look into this yourself if you have a Freddie Mac mortgage. You can check by going to Fannie Mae they also offer relief options under the Making Home Affordable program. Good luck and let me know if you have any good or bad stories.

Photo Courtesy jadjadjad

{ 13 comments… read them below or add one }

Financial Samurai 2009/12/07 at 9:41 am

Oh wow, well done! Is this Freddie Mac relief program limited to first time home buyers, those with only one home, or have mortgages under a certain amount? I fear that government assistance never seems to help out the middle class, but hopefully I’m wrong with this one!

Great work in lowering your payment!!
.-= Financial Samurai´s last blog ..The Public Loves Wall Street Again! =-.

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paul 2009/12/07 at 10:27 am

This is not a first time homebuyer program thankfully so yes it’s helping out this middle class homeowner. As to investment properties the literature is sketchy you could check with your lender or broker but from Freddie Mac’s site in their FAQ:

Occupancy

* 1- to 4-unit primary residence.
* 1-unit second home, provided the mortgaged being refinanced was underwritten and sold to Freddie Mac as a second home mortgage.
* 1- to 4-unit investment property, provided the mortgage being refinanced was underwritten and sold to Freddie Mac as an Investment Property Mortgage.

Q:If a borrower has 10 financed properties, do your old requirements permitting up to 10 financed properties or your new requirements permitting up to four financed properties apply to Relief Refinance Mortgages?

For Relief Refinance Mortgages ““ Same Servicer, you must represent and warrant that the mortgage being refinanced met the requirements that were in effect at the time the mortgage was sold to Freddie Mac. You do not need to represent and warrant to the current requirements in Guide Chapter 22.

For Relief Refinance Mortgages ““ Open Access you must meet the current requirements of Guide Chapter 22, which permits up to four financed properties.

So I believe you do have options, the key being the original use is maintained. The only exception seems to be if you bought a home as investment and then decided to live in it, they are okay with that.

As to mortgage limits only the LTV values are listed as limiting factors. And finally to your cost breakdown analysis I may have a chance to do that but not at the moment.

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Financial Samurai 2009/12/08 at 10:06 am

Gotcha, cool Paul. So, if I bought a $2.5 mil house, with a $2.5 mil mortgage, and the value drops to only $2 million, I can take advantage of this program?

If so, this is great equality for all, and another fantastic government program to help all classes.
.-= Financial Samurai´s last blog ..The Public Loves Wall Street Again! =-.

Financial Samurai 2009/12/07 at 9:44 am

Oh BTW, sorry to re-comment, but do you mind highlighting in an inventory type format a column of the COSTS associated with doing this, and then compare with the benefits on a per month or per year basis?

This way, we can figure out how many months or years it takes to break even. I do this every time I refinance my properties, and if the break even cost is below 24 months I do it.

Thnx!

Sam
.-= Financial Samurai´s last blog ..Why The World Forgives Rich And Famous People For Cheating =-.

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Kevin@OutOfYourRut 2009/12/07 at 10:50 am

Glad it worked out for you Paul. As much as that refi helps, my thought is that it would be better for all if the mortgage lenders would write down the loan balances. That would be the only way to really get people out from under and get the economy rolling. People under water on their mortgages can’t sell and buy new houses, to say nothing of the gloom that accompanies “owning” (???) a house that’s worth less then the mortgage attached to it.

I know there would be problems with doing that, but it’s already a national problem anyway. Heck, if they can bail out the banks to the tune of 10s of billions, why not the citizenry? It probably would mean something close to an instant end of the foreclosure crisis.

At the moment everyone’s banking on a surge in values to correct the imbalance, but what if it doesn’t happen?
.-= Kevin@OutOfYourRut´s last blog ..Seek Fulfillment Beyond Your Work =-.

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Kevin M 2009/12/08 at 12:55 pm

No offense man, but this sounds like sour grapes to me. I really don’t have much sympathy for someone who is going to save $250 a month because of what boils down to a government bailout. So you had to fill out some forms and come up with a little money? That’s part of the cost/benefit analysis of doing a refi in the first place.

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paul 2009/12/08 at 3:26 pm

Fair enough Kevin, wasn’t really asking for sympathy, I was just trying to recount my experiences and yes they may have come off as whiny. I was trying to convey this goes well beyond a standard refinance of which this is my third during my home ownership history. I’m fortunate that I’m in a place where I can come up with the cash to make this happen but it’s unfortunate for those who are barely able to pay for their housing costs and put food on the table there are unfortunate requirements to help them out. Your point is noted.

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Financial Samurai 2009/12/08 at 10:13 pm

Nothing wrong with a bailout, if it goes directly into our pockets. We need to take advantage of this massive government spending as much as we can!

“Cash for home remodeling” that Obama just proposed today is gonna be HUGE! I could save perhaps $20,000 on redoing my kitchen perhaps. Thanks Obama!
.-= Financial Samurai´s last blog ..The Public Loves Wall Street Again! =-.

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Craig 2010/01/12 at 8:09 pm

So my question is this. My home appraised for 132,00. My first is 117,000. My second which was taken out 1 year after purchasing my home is 9500. The broker is telling me that because the first and second were not done at the same time, it’s called a “cash out.” Meaning that they will only finance 85% plus all closing fees and cost which puts it at 92%. She says that I have to pay out the second, then I can refinance the first. Seems like someone with PERFECT credit 750 plus should be able to finance 100% or at least to FHA 97% or conventional 95%. Right or wrong? Will the Fannie May deal work for me?

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paul 2010/01/13 at 10:09 am

Hmm Craig that goes against what the plan is actually trying to accomplish. I’m not a mortgage expert but my own situation is that I had a first took out a second a couple of years later and I was able to do refinance despite being underwater about 45,000. What your broker is proposing is if you were just to go off the street and refinance without these programs. I would recommend finding another broker or working with your first mortgage servicer directly.

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Chris Williams 2010/01/24 at 1:38 pm

I had very similar circumstances to you as well. I am in the 350 range for my loan and my house value fell to 300k. So I also looked into the refi process. However, even though I am in the low 700’s, the loan included 3.75 points to close. I would have to pay close to 7k out of pocket after the 5k that can be wrapped. In the end, I would only save $150 a month and that is after having over 15k toward the principal paid down after 2 years of having the loan. The interest rate was quoted at 5.625%. They quickly also commented that I *have* to stay with the original servicer while i was on the phone with them. This does not seem right to me on many fronts.

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paul 2010/01/24 at 4:32 pm

Good night 3.75 points in your closing? Was that a requirement of the loan servicer? And 5.625 is not a good rate either. I had a friend look into the same thing and he found some success by calling around. You might do the same.

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Robert 2010/07/14 at 11:58 am

I tried to get a freddie m loan but was unable to proceed since my debt to income ratio was not good…as they saw it. My credit is excellent, I have never defaulted on ANY loans, and I have $60,000 in the bank. I don’t need to pay off any debt since I have ALWAYS been able to meet my obligations and would like to keep my cash at hand. I don’t understand it, since I thought it was for people who are solvent and want to lower their interest rates. IT JUST DOESN”T MAKE SENSE.

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