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- The Secret About Prescriptive Easement: Top Guide 1 Must Know - December 4, 2023
- About Home Equity Loans In Texas And How Can One Obtain It - November 27, 2023
What is FMERR?
FMERR – The Freddie Mac Enhanced Relief Refinance is a mortgage relief program. This program was created to help homeowners who have little or no equity refinance get a lower interest rate and monthly payment.
Across the country home values have been rising rapidly, leading to the number of homeowners with underwater mortgages decrease.
This has enabled many homeowners to get eligible to refinance. If a borrower needs a lower interest rate and cheaper monthly payment, they need to check their eligibility to refinance and take benefit of the current low rates.
The Enhanced Relief Refinance program
Freddie Mac’s FMERR was created to help borrowers with very little equity refinance into a lower rate and monthly payment.
Usually to qualify for a refinance homeowners need a certain amount of home equity. The homeowner builds equity as they pay down their mortgage resulting in an increase in the home’s value.
When home values are stagnant or falling then those equity requirements can be an issue.
If a homeowner made a small down payment, or if their home’s value has fallen since the purchase, they might not have enough equity to meet a lender’s minimum requirement for refinancing.
As the current housing market is hot, the real estate values have been rising in the whole of the U.S. reducing the number of homeowners with high-LTV loans.
There’s a good chance the homeowners home’s value has increased. And they might qualify for a refinance with or without using a special program like FMERR.
Can a borrower refinance FMERR even with a high loan-to-value?
Under the Freddie Mac Enhanced Relief Refinance, a borrower can refinance their home loan at current interest rates even if they have very little or no equity.
So if a borrower doesn’t qualify for a standard mortgage refinance program, lower rates are still possible.
With the FMERR option, even if the property is underwater, that is even if the value of the home is lower than the outstanding debt one can refinance.
So if a home is worth $200,000 and the borrower owes $210,000, they can still refinance with FMERR if they meet other guidelines.
Most conventional loan programs are very strict about loan-to-value ratios (LTVs). But for this loan, Freddie Mac eliminates LTV maximums.
For example, if a home is worth $100,000 and the borrower owes $120,000. They could get a new mortgage that covers the full amount owed even though it would have a 120% loan-to-value.
Qualification for the FMERR program
FMERR is an initiative to help underwater homeowners. Only recent borrowers can qualify for it. There are many requirements to be met by borrowers to qualify for a Freddie Mac Enhanced Relief Refinance.
Eligibility guidelines are as follows
- The current mortgage must be owned by Freddie Mac. If unaware of the mortgage detail the borrower can use Freddie’s loan lookup tool
- The loan-to-value should be a minimum of 97.01% for a one-unit, owner-occupied residence
- The current loan must be have been originated on or after 1st November 2018
- The date the current loan was originated and the date of the new loan must be at least 15 months apart.
- In the past 6 months, the borrower must have had no 30-day late payments, and no more than once in the past year
Suppose a borrower purchased a home and closed on November 15, 2018. They have a $250,000 loan, but the home is worth $240,000 and they want to refinance because of low rates.
Despite having little or no home equity, they might be eligible for the FMERR program.
The minimums and maximums Loan-to-value ratio
The FMERR loan comes with minimum LTV requirements. So if a borrower has too much equity they won’t qualify.
The minimum LTVs depends on whether the home is a primary residence a second home or if it is an investment property. The LTV also varies depending on units:
- For primary residence:
1-unit to 3-4 units the LTV ranges from 97.01% to 80.01%
A single unit also includes manufactured homes
- In the case of a second home:
1-unit the minimum LTV is 90.01%
- For investment property:
Depending on whether it is a single unit or 4 units the LTV ranges from – 85.01% to 75.01%.
If the borrower’s current mortgage is a fixed rate then there is no maximum LTV.
If the borrower is currently having an adjustable-rate loan like a 5/1 ARM or 7/1 ARM, then to qualify for a refinance the maximum LTV is 105%.
That is because of the special disclosure and reporting requirements when refinancing with a high-LTV ARM.
Does the refinance have a net tangible benefit?
Refinancing makes sense only when the borrower obtains a real and material benefit.
In the case of an FMERR, lenders need to see one or more improvements in the financial situation of borrowers.
To qualify, for a new loan a borrower must have one or more of the following:
- They must have a lower interest rate
- They must have a smaller monthly payment
- They must have a changed amortization term like converting from a 30-year mortgage to a shorter-term loan
- Or to change from an adjustable-rate mortgage to a less risky fixed-rate loan
A relief refinance should be able to make the borrower’s monthly mortgage payments more affordable.
But one must be careful so they don’t end up paying more in total because refinancing starts the loan all over, thus extending the amount of time a borrower is paying interest.
Payment history and FMERR eligibility
Before qualifying a borrower and buying the mortgage from a lender, Freddie Mac would want to know if the borrower has a good payment history.
Which according to the Freddie Mac Enhanced Relief Refinance, means no 30-day delinquencies during the most recent half-year, and no more than one 30-day delinquency in the past year.
Many a time the discretion is with the lender who could be more strict and may not allow any late payments in the last 12 months.
Conclusion
Even though FMERR is offered by Freddie Mac, it is not a federal mortgage relief program, which means it is government-sponsored but not run by the federal government.
FMERR is a unique program where the borrower can have to have very little equity to and yet qualify.
The FMERR rates are low but the rates will vary depending on the borrower’s credit score and other situations. A new borrower cannot be added to the loan while refinancing with FMERR.
