Fannie Mae and Freddie Mac said on Thursday they will extend more credit to underwater borrowers next year by refinancing higher-risk home loans through a new program.
The “high” loan-to-value option, not expected to be available until late in 2018, will allow borrowers to refinance loans above the agencies’ prior 95% standard LTV limit.
Loans inked under the program can be rolled into future credit risk transfer (CRT) bond deals.
The program will look to replace the Obama-era Home Affordable Refinance Program (HARP), which expires in December 2018, a Fannie Mae spokesperson told IFR.
HARP was put in place in 2009 in the wake of the housing crash to help underwater borrowers stay in their homes by making payments more affordable.
But for borrowers to be eligible for the new program they must be current on their mortgage payments and use their homes as a primary residence.
The refinancings also must reduce a borrower’s monthly payments, lower their interest rate, shorten an amortization term or put a borrower into a more stable product.
Converting an adjustable-rate loan into a fixed-rate product is considered one way to make a mortgage more stable, according to Fannie and Freddie.
To qualify for the new program, the loan also must be made on or after October 1, 2017. Thereafter, the loans can be bundled into CRT bond deals.
CRT bonds help reduce taxpayer exposure to the large book of mortgages guaranteed by the two housing giants.
Unlike standard mortgage bonds issued either by Freddie and Fannie, CRT bonds do not come with government guarantees.
Relatively high yields and increased liquidity have made CRT popular with investors in the past few years betting on an improved US housing market.
Fannie has sold US$27.3bn of such notes since its Connecticut Avenue Securities CRT program got off the ground in 2013.
Freddie’s Structured Agency Credit Risk program has issued US$28.7bn over the same period.