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125% Refi's Announced! Does the Government Finally Get it?

The government appears to be finally understanding how many Americans are upside down in their homes.


As I've been predicting for months, the FHFA just announced today that they will be allowing FNMA & FHLMC to refi underwater homeowners up to 125% of their property's value.

Previously the cap was at a joke amount of 105% LTV, resulting in President Obama's hyped Home Affordable & Stability Plan being way behind on the estimated number of homeowners it was meant to help.

Whether or not the government should be doing this is up for debate.

The argument against is all for letting the free market work its magic.  Get the pain over now and let the economy recover.

Those for government intervention argue that the nation's housing market is "too big to fail".  If the government bailed out the "fat cats" on Wall Street, then it should bail out ""Joe Six-Pack" also.

Since we've already started down this slippery slope, it would have been better if they would've done away with the appraisal requirement on refinances all together.  A new appraisal hasn't been required on an FHA Streamline refi since 1984.  Now with FNMA/FHLMC owned by the government, what's the difference?  If it works for FHA, it'll work for FNMA/FHLMC.  Either way, this county's mortgage debt is backed by the government and if payments can be lowered, less homeowners will foreclose.  People have to live somewhere. 

As a side note, think what this would do to HVCC appraisal issues!

Now, keep in mind that this will take awhile to be implemented as a lot of software needs to be rewritten. Also, the when the government approved the 105% LTV, FNMA & FHLMC both added pricing hits, which offset some of the gains of lower rates. I would hope they don't do the same this time.

Lastly, let's hope FNMA & FHLMC allow more lenders and brokers to do these loans. Right now, FHLMC forces homeowners to only go to their current lender. These lenders are pretty backed up, some taking 60-90 days or more to close these loans.