Magazine article American Banker

Fannie Mae Will Purchase Refis with Just 5% Borrower Equity

Magazine article American Banker

Fannie Mae Will Purchase Refis with Just 5% Borrower Equity

Article excerpt

WASHINGTON -- Fannie Mae, bowing to lenders and a leading member of Congress, has agreed to buy some refinanced mortgages with as little as 5% borrower equity. It previously required 10% equity.

The policy shift, announced Friday by agency chairman James Johnson, is expected to spur refinancings in the Northeast and California, where falling house prices have blocked many homeowners from refinancing.

Leading mortgage executives had been working behind the scenes to bring about a loosening of the agency's requirements. The agency also was pushed by Rep. Joseph Kennedy 2d, D-Mass., said a Fannie Mae spokesman.

"Fannie Mae did all Fannie Mae can do," said Warren Lasko, executive vice president of the Mortgage Bankers Association of America. "We have advanced the ball far down the field."

Restriction Causes Concern

Some lenders, however, are concerned by certain conditions that Fannie Mae placed on buying refinanced loans with 5% equity. Most notably, the option will be available only to homeowners whose original mortgages had been sold to Fannie Mae.

Ed Sensor of Vermont-based Banknorth Mortgage Co. said the stipulation could put a big burden on lenders to establish whether a refinancing applicant's existing mortgage had been sold to Fannie Mae.

Freddie Mac, the rival secondary-market agency, is looking at the issue, said spokeswoman Marcia Davies. She said Fannie Mae's announcement would not affect Freddie's deliberations. …

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