New mortgage refinance programs from Fannie Mae and Freddie Mac are expanding to reach more homeowners

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For Stacey Foley, refinancing her mortgage was a no-brainer.

After paying roughly 4.25% in interest on her existing home loan, refinancing at 3.25% with limited closing costs has saved her $200 monthly.

“Two hundred dollars doesn’t sound like a lot of money, but over a year it is,” Foley said.

The North Carolina resident was able to qualify at online mortgage lender Better.com through a new government refinancing initiative called RefiNow. It targets low- to moderate-income borrowers who might otherwise struggle to secure competitive loan terms.

Launched in June by Fannie Mae, the program recently increased the income limit for qualifying and loosened some other requirements to make it easier for borrowers to participate. Freddie Mac also is offering a similar initiative, called RefiPossible. (Fannie and Freddie are government-sponsored and publicly traded enterprises that buy and sell mortgages.)

The changes “are broadening the population that can qualify and are making the transactions have less friction,” said Mike D’Ambrosio, director of credit risk at Better.com.

With rates reaching historical lows in 2020, refinancing activity hit roughly $2.6 trillion last year, according to Freddie Mac. That marks the highest annual total since 2003, when $3.9 trillion in refinancing was recorded.

Mortgage rates remain modest: The average rate on a 30-year fixed mortgage is 2.78%, according to real estate site Zillow. For comparison: In 2018, the average was 4.54%, according to Freddie Mac. In 2008, it was 6.03%.

Despite the overall boom in refinancing last year, there was a drop in activity among homeowners whose earnings fall below their area’s median income, said Sandra Thompson, acting director of the Federal Housing Finance Agency, at a Mortgage Bankers Association convention in October.

“These borrowers risk being left on the sidelines during a generational opportunity to lock in more sustainable monthly payments,” Thompson said in her remarks. “And these are often the very people who could most benefit from adding breathing room to their budget.”

She also said in her speech that take-up of the two refi programs has been slower among some larger lenders. The new changes incorporate some of the feedback received about how the programs could be modified to be more effective.

To be eligible for RefiNow, borrowers must first have a Fannie Mae-backed mortgage for their house, which they must live in.

Households whose earnings are not above their area’s median income are generally eligible if they can meet some other requirements. When the program first launched, the income limit was 80% of that local median amount. (Freddie Mac’s initiative will raise the limit in January as well as incorporate some other announced changes.)

The ReFiNow program also eliminated the requirement that the loan could not be older than 10 years. A cap on closing costs also was removed, and payment reduction can be of any amount instead of a minimum. However, lenders must provide a rate cut of at least 50 basis points (half a percentage point).

Also, borrowers who have resolved missed payments due to a Covid-related forbearance may now be able qualify. Originally, no applicant was permitted to have missed any payments in the previous six months and no more than one in the previous 12 months.

Additionally, borrowers must have a debt-to-income ratio below 65% and a FICO credit score of at least 620.

Homeowners can contact any mortgage company they want to explore refinancing through either program. While lenders aren’t required to participate, many are.

If you’re uncertain whether your loan is owned by Fannie Mae, you can use the loan lookup tool. To check if it’s owned by Freddie Mac, a separate online search tool is available.