Fannie, Freddie Expand Eligibility on Refinancing

Wed Jul 1, 2009 1:50pm EDT

(Recasts, adds Geithner quote)

WASHINGTON, July 1 (Reuters) - Mortgage finance companies Fannie Mae will expand efforts to prevent foreclosures by allowing refinancings by borrowers whose outstanding loans exceed the value of their homes by up to 25 percent, the Obama administration said on Wednesday.

Under current rules, the two government-controlled mortgage finance companies can only allow borrowers to refinance when their outstanding loan exceeds the value of their home by no more than 5 percent, known as a mortgage loan-to-value ratio of no greater than 105 percent.

The new policy, allowing a loan-to-value ratio of up to 125 percent, is intended to aid more struggling borrowers who have seen their property lose value in the recent years of a housing crisis.

"By expanding refinance eligibility, we can bring relief to more struggling homeowners more quickly," Treasury Secretary Timothy Geithner said in a statement.

The collapse in housing prices has caused more and more homeowners to be "underwater," with the money they owe on their mortgage outstripping the value of their home.

Home values in many markets have sunk by 18 percent in the last 12 months, according to Standard & Poor's/Case Shiller home price index.

The new program expands a housing rescue plan first outlined by the Treasury Department in February that was meant to lower the costs of home ownership for borrowers who are making timely payments.

In a typical mortgage refinance, a borrower has built a large amount of home equity or offers a lender cash to secure a lower interest rate.

In another move announced on Wednesday, Fannie Mae and Freddie Mac will encourage borrowers to drop their 30-year loan in favor of a mortgage that matures faster. The two companies, which were seized by the federal government last September, will reduce the processing fee for borrowers who opt for a 25-year mortgage, for instance.

"The reduction is intended to incent borrowers to select shorter terms and build positive equity in their homes sooner than with a typical 30-year mortgage," Fannie Mae said in a statement.

The Treasury Department said that more than 200,000 borrowers have received offers for trial loan modification since February. (Reporting by Patrick Rucker with Lynn Adler and Al Yoon in New York; Editing by Leslie Adler)

July 10, 2009 U.S. Asks Banks to Expand Foreclosure Prevention

July 1, 2009 Fannie, Freddie Expand Eligibility on Refinance

June 11, 2009 150,000 Homeowners get Mortgage Modifications

June 10, 2009 10 Large Banks Allowed to Exit U.S. Aid Program

May 24, 2009 Asset Purchases May Boost Economy

May 20, 2009 Reforms For American Homeowners and Consumers