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The Federal Housing Finance Agency (FHFA) Wednesday announced a new refinancing option for low-income borrowers with mortgage loans backed by the government-sponsored enterprises (GSEs). This new option could help alleviate some concerns about the GSEs' 0.5 percent adverse market refinance fee imposed last year to mitigate risks brought on by the coronavirus pandemic.

"While we continue to believe that the FHFA should reverse its adverse market fee policy to ensure credit unions and their members are not faced with additional financial burdens during a period of hardship and uncertainty, we are pleased to see the agency take steps to support vulnerable borrowers," said NAFCU Executive Vice President of Government Affairs and General Counsel Carrie Hunt. "This new option will provide low-income borrowers, who have been disproportionately impacted by the pandemic, an affordable option to refinance their mortgage loans and take advantage of the current low interest rate environment to save money.

"However, the GSEs' recent PSPA amendments may limit the number of borrowers able to take advantage of this option, as the amendments restrict the amount of refinanced mortgages the GSEs can acquire. We will continue to voice our concerns with the FHFA and work to address these issues."

The PSPAs restrict the GSEs' acquisition of single-family mortgage loans to a maximum of 3 percent of refinancing mortgages over the trailing 52-week period that have two or more higher-risk characteristics at origination: A combined loan-to-value (LTV) ratio greater than 90 percent, debt-to-income (DTI) ratio greater than 45 percent, and FICO less than 680. The loans eligible for the new refinance option would still count toward this 3 percent limit.

To qualify for the new refinance option, borrowers must:

• have a GSE-backed one-unit, single-family mortgage that is owner occupied;
• have an income at or below 80 percent of the area median income;
• have not missed a payment in the past six months, and no more than one missed payment in the past 12 months; and
• not have a mortgage with a LTV ratio greater than 97 percent, a DTI ratio above 65 percent, or a FICO score lower than 620.

The option provides:

• a requirement that the lender provides a savings of at least $50 in the borrower's monthly mortgage payment, and at least a 50-basis point reduction in the borrower's interest rate;
• a maximum $500 credit – to be provided by the GSEs to the lender upon the loan's sale to Fannie Mae or Freddie Mac – for an appraisal if the borrower is not eligible for an appraisal waiver;
• a waiver of the 0.5 percent adverse market refinance fee for borrowers with loan balances at or below $300,000.

The FHFA in its release noted that low-income borrowers have been less likely to take advantage of the favorable interest rate environment than higher-income borrowers. It estimates that low-income borrowers who take advantage of the new option could save an average of $100-250 a month.

NAFCU will continue to monitor the FHFA's efforts to support liquidity and affordability in the mortgage market and work with the agency to ensure credit unions' concerns are addressed.