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Ds News reports the following:

“Freddie Mac announced on Friday that it is instituting several changes to its refinance offering under the Obama administration’s Making Home Affordable program. The McLean, Virginia-based GSE explained that the new relaxed guidelines will make the refinancing option available to a wider scope of borrowers looking for mortgage relief from the government program.

Under the new rules, homeowners will be able to refinance a Freddie Mac-owned or guaranteed mortgage with any lender affiliated with the GSE. Previously, borrowers had to work with the lender who currently services their mortgage. Freddie Mac explained that borrowers can continue to work with their existing servicer to refinance, and in the majority of these cases, the current servicer will not have to re-underwrite the loan. However, if the borrower chooses to work with another Freddie Mac-affiliated lender, the mortgage will need to be underwritten by the new servicer.

Freddie Mac’s expansion of approved lenders that can be used for refinancing is now more in line with its sister company Fannie Mae’s guidelines. Under its program, Fannie Mae permits borrowers to choose from a list of more than 1,600 approved lenders to secure a refinanced mortgage. The previous disparity between the two GSEs’ standards drew criticism from mortgage brokers and smaller lenders who argued that Freddie Mac was shutting them out of the federal program.

Freddie Mac said it is also increasing the amount of closing costs that can be rolled into the new refinanced mortgage. The GSE will now allow the lesser of 4 percent of the new refinance amount or $5,000 of closing costs, financing costs, and prepaids/escrows to be rolled into the new refinance mortgage. Freddie Mac’s standard post-settlement delivery fees, up to a maximum of 2 percent, will still apply to mortgages funneled through its refinance program.

Commenting on the new guidelines, Freddie Mac EVP Don Bisenius, said in a press statement, “We are responding to consumers’ desires to have more refinancing options. Freddie Mac is committed to doing everything we can to bring the benefits of the administration’s Making Home Affordable program to as many borrowers as possible.”

Freddie Mac’s Relief Refinance Mortgage offering became available April 1 and applies to those borrowers who are current on their mortgage payments but have been unable to refinance due to declining property values and tightening credit terms. A spokesperson from the company told DS News that servicers should look for a bulletin to be released within the next week, detailing when the new guidelines will take effect.”

My Opinion:

How will this action affect short sales? For a lot of homeowners, this may present an alternative not previously available. Loan Modifications are also the hot deal, but rejections of loan mods only decreased from about 85% to about 65%. Refinancing with relaxed standards for the current homeowners will mitigage a great amount of losses for the lenders, however, there will only be a substantail reduction in savings for the homeowners if the principal balance is modified to the new property value. Thus, the devil will be in the details.

Will this be the end of the short sale? Emphatically NO! The opinion of this author is that these new re-fi’s will only marginally affect short sale cases. The numbers of borrowers, and property, who will actually qualify is likely to be fairly small. The only likely impact will only affect those wanting an option to loan modification. For those borrowers who cannot afford even a modified or refinanced payment due to job loss or transfer, short sales remain the best option.

We will continue to watch this development and report back to you.

Ken Lawson JD

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