08 May 2012

Freddie Mac Drops Refi Fee

Story first appeared in The Wall Street Journal.

In the latest bid to help homeowners hit by the housing crash, Freddie Mac, the U.S.-supported mortgage giant, is set to drop a fee associated with refinancing deeply underwater loans.

The firm plans to eliminate a fee of 0.5 percentage point, called a cash adjustor, on loans refinanced under the Home Affordable Refinance Program with balances greater than 125% of the property’s value, said a senior vice president at Freddie Mac. He spoke at a Mortgage Bankers Association conference on Monday.

Dropping the fee represents the latest sign that the government-sponsored enterprises and their regulator are determined to extend the reach of the refi program. Changes last year eliminated the loan-to-value cap and relieved banks of some liabilities that could arise with homeowners willing to default.

Freddie Mac had earlier this year dropped the cash adjustor on HARP refinancings for mortgages with loan-to-value ratios ranging from 105% through 125%, and encouraged the lenders to pass the savings to consumers. (The fee was created to help offset some of the increased risk seen in such refis.)

The change should increase the number of borrowers who tap the program, which was revised last year to boost participation. Already this year, refis under HARP are increasing as a percentage of loans refinanced by Freddie Mac.

The fee is being dropped in reaction to changing market conditions, a Freddie Mac spokesman said in an email.

While helping homeowners, constant tweaks to the program have unnerved investors in the mortgage-backed securities that fund the originations. Investors see returns fall when refinancings are faster or slower than expected, so most investors have placed a high premium on bonds backed by loans least eligible for HARP.

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