FHFA’s New Refinancing Plan May Not Help Many
By Brian Collins
Though the Federal Housing Finance Agency has yet to provide full details about its new refinancing program to be launched next year, some analysts and industry observers are already convinced it will have only a limited impact. The agency announced the new bridge program last month even as it extended the Home Affordable Refinance Program for an additional year. While it said it would release more specifics this fall, the program will be aimed at loans with high loan-to-value ratios…. Basil Petrou, managing partner of Federal Financial Analytics, said the new program could be used to refinance government-sponsored enterprise loans that were originated simultaneously with HELOCs or second mortgages. That could benefit banks that originated those second liens. “There are several ways the banks can get HELOC relief,” Petrou said. “One would be for the LTV of the new first to be high enough to permit the borrower to pay off the outstanding HELOC. Alternatively, the reduced rate on the first creates debt to income relief that also permits rapid payoff of the HELOC. Either way, the HELOC holding bank wins.” These homeowners face “significant amounts of payment shock,” according to an Aug. 25 GSE Activity Report issued by Federal Financial Analytics. That “means borrowers — current now but perhaps still struggling to make ends meet after the crisis — will now face larger monthly payments than many will be able to manage,” the report says.