Fannie Mae Mortgage Refinance Rules & Guidelines

Fannie Mae Mortgage Refinance Rules: Recent Changes, But Much Remains the Same
The Federal National Mortgage Association, more commonly known as Fannie Mae, is a government-sponsored enterprise that helps to finance mortgages in what is known as the secondary mortgage market. Rather than making loans directly to individuals, Fannie Mae makes funds available to the banks and lending institutions; these financial institutions then, in turn, provide mortgages and refinance arrangements to consumers. Because Fannie Mae plays such a large role in the mortgage market, the mortgage refinance rules established by Fannie Mae affect a significant number of loans throughout the country.

Fannie Mae refinance mortgage program & guidelines

One of the newest Fannie Mae mortgage refinance options is the Home Affordable Refinance Program, or HARP. First unveiled in 2009, HARP relaxes certain Fannie Mae mortgage refinancing rules in order to allow distressed homeowners the opportunity to refinance their current mortgage and relieve their financial difficulties. According to Fannie Mae officials, the HARP initiative is intended to allow struggling homeowners to refinance Fannie Mae mortgage loans even in cases where the loan-to-value ratio exceeds 80 percent, and to loosen mortgage refinancing rules to allow 125% loan-to-value refinances with approved mortgage insurance arrangements.

Major changes and recent updates

Starting in early 2009, Fannie Mae mortgage refinance rules were relaxed to allow individuals with bad or no credit history a better chance to refinance their existing mortgages. Fannie Mae funds about 40 percent of the mortgages currently in existence in the United States; thus, changes in the Fannie Mae refinance mortgage program impact a large number of mortgages and typically prompt other lending institutions and mortgage holders to follow suit as well. The loosening of the purse strings at Fannie Mae was intended to encourage more lending throughout the country. However, certain aspects of the HARP plan and other refinancing rules have allowed banks to deny refinance or modification applications even when Fannie Mae mortgage refinance rules would have allowed them.

Some things will stay the same

Only employed individuals will be eligible for these new Fannie Mae mortgage refinance arrangements; for self employed refinance mortgage loans, individuals will typically have to apply to private lenders and follow their mortgage refinance rules. Additionally, Fannie Mae mortgage refinance rules prohibit refinances by individuals who are not current on their mortgage payments or who have had serious delinquencies on their mortgage payments over the preceding twelve months. This limits the number of potential refinance candidates significantly and may be a factor in the relatively small number of mortgage holders who have taken advantage of this plan.

Overall, the Fannie Mae mortgage rules are expected to remain largely unchanged. Certain financial and eligibility accommodations have been made to allow more homeowners to refinance their Fannie Mae mortgage to a new, lower rate. For the majority, however, the changes to mortgage refinance rules are expected to have little or no effect on the long-term cost of the mortgage loan.