- The Washington Times - Friday, February 12, 2010

Last week, I continued my campaign to inform readers of ongoing changes in the mortgage world. The hype is everywhere. Some folks call me, expecting a free loan thanks to new legislation passed by the Obama administration. Other folks want to know how they can refinance their house despite the fact that the property is worth far less than the mortgage balance.

While there is merit in what these people think they heard, the fact is, the efforts of the federal government to ease the credit crunch have been largely unsuccessful.

No, there is no such thing as a free loan. Yet I have heard that it’s possible for some folks to refinance their current loan to a lower interest rate with a lower loan balance. I have a friend who was promised that his $220,000 mortgage at 6.5 percent could be refinanced to a rate of 5 percent with a new loan of just $200,000. Someone is giving away $20,000. My friend started this process in November, and it apparently is “still in the works” almost four months later. I’m a little suspicious.

The Refi Plus program offered by government-owned mortgage giants Fannie Mae and Freddie Mac, however, is a real and legitimate program. It allows qualified homeowners to take advantage of today’s low rates even if their property values have dropped to levels that normally would make them ineligible.

The Refi Plus program won’t reduce the amount you owe, but it allows a borrower to refinance to market rates even if his property value has dropped. It is a great deal. The problem is that there are several strings attached that limit the number of folks who are eligible for the program. Still, if your property value has dropped, it’s worth consulting with a reputable mortgage broker who can determine if you qualify for this program.

Last week, I addressed another issue: wealthy borrowers who cannot obtain a loan. The tried-and-true rule in the lending business is to lend money to the folks who don’t need it. Fannie and Freddie apparently are using a different rule book.

Here’s a short recap of last week’s column:

If a borrower is looking to refinance a $400,000 loan secured against a property worth $500,000, has a salaried job with a good income (although that job could be eliminated at any time), reasonable credit scores and no savings, he can get a loan under the guidelines of Fannie Mae and Freddie Mac. OK, that’s reasonable.

But if a borrower is looking to refinance a $400,000 loan secured against a property worth $1,000,000, has perfect credit scores, has $1,500,000 in cash in the bank but no significant income because he’s retired, he is not eligible for a Fannie or Freddie loan. His loan is rejected because his income doesn’t support the payments. Apparently, Fannie and Freddie ignore the fact that this disciplined and frugal saver has enough money in the bank to pay off the loan several times. Not to mention perfect credit and collateral worth three times the loan balance.

What’s wrong with this picture?

I have thus far spoken to the head media-relations folks at Fannie and Freddie, who agree that my question is legitimate. They have promised me that a representative who is knowledgeable in underwriting will get back to me with an explanation.

Sorry to dwell on this subject, folks, but it needs to be investigated. There are a lot of wealthy, responsible retirees who have little income who would like to lower their interest rate but are being rejected.

Henry Savage is president of PMC Mortgage in Alexandria, Va. Reach him at [email protected]

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