Obama's Mortgage Refinancing Program May Be Expanded (Update1)

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Obama's Mortgage Refinancing Program May Be Expanded (Update1)

By Dawn Kopecki and Jody Shenn

June 19 (Bloomberg) -- Fannie Mae and Freddie Mac may get permission to begin refinancing mortgages with loan-to-value ratios above 105 percent as the Obama administration seeks to boost participation in its anti-foreclosure programs.

“We’re actively considering how to structure a program that makes sense over 105 percent,” Federal Housing Finance Agency Director James Lockhart said yesterday. He said a ratio of 125 percent “is a number” that’s on the table, though “not necessarily the number we’re going to end up with.”

President Barack Obama’s Home Affordable program announced Feb. 18, sought to help as many as 5 million Americans who may owe more on their mortgages than their homes are worth. Fannie Mae and Freddie Mac have refinanced 80,000 loans under that program, Lockhart told a National Association of Real Estate Editors Association conference in Washington yesterday. He didn’t say when the loan-to-value ratio could be raised.

“While this will help some borrowers with higher interest rate loans, you really need to get mortgage rates down below 5 percent to have a huge impact on refinancing,” Scott Buchta, a strategist at Guggenheim Capital Markets LLC in Chicago, said.

Home Affordable has been “seeing a slowdown” as mortgage rates increase, Lockhart said. The average rate on a typical 30- year fixed loan was 5.38 percent in the week ended yesterday, according to Freddie Mac. The rate is up from a record low of 4.78 percent at the end of April.

Underwater Borrowers

The program applies to mortgages that meet Washington-based Fannie Mae and McLean, Virginia-based Freddie Mac’s conforming loan limits. That cap is $417,000 for some areas and as high as $729,750 for the 250 most expensive real estate markets.

Under the program, borrowers with loans owned or guaranteed by Fannie Mae or Freddie Mac who have loan-to-value ratios of 80 percent to 105 percent and aren’t delinquent can refinance without buying mortgage insurance, or paying for more insurance than they already have.

Expanding the program to a 125 percent loan-to-value level may benefit about 10 percent of borrowers that have loans backed by Fannie Mae or Freddie Mac, according to Mahesh Swaminathan, a mortgage strategist for Credit Suisse in New York. He said an additional 4 percent of borrowers with Fannie Mae or Freddie Mac loans are further underwater.

“If home prices decline further, this bucket” of underwater borrowers could expand, he said.

A drop in values has left about 20.4 million of the U.S.’s 93 million houses, condos and co-ops with mortgages higher than the properties are worth as of March 31, Seattle-based real estate data service Zillow.com said in a report May 6.

Warehouse Lending

Fannie Mae and Freddie Mac own or guarantee more than half of the single-family mortgages in the U.S. The government- chartered companies were seized by regulators in September amid concern that their capital wasn’t sufficient to weather the worst housing slump since the Great Depression.

Lockhart also said yesterday that his agency, the companies’ regulator, is looking at ways for Fannie Mae and Freddie Mac to help the so-called warehouse lending market, which provides financing to smaller, independent mortgage companies, amid a credit crunch.

While Fannie Mae and Freddie Mac are prohibited by law from lending directly to other firms, Lockhart said they may be able to provide the market some liquidity by committing to purchase multifamily and other loans.

To contact the reporter on this story: Dawn Kopecki in Washington at dkopecki@bloomberg.net; Jody Shenn in New York at jshenn@bloomberg.net.

Last Updated: June 19, 2009 13:23 EDT