It Pays to Be Aware of Recent FHFA Changes to Lending Rates and Rules

We are barely six weeks into 2023 and already, we are  feeling  the effects of  “pent up demand” for housing. Denver’s real estate market is rebounding and the advantages that buyers had in the last few months are declining as the “Spring Selling Season” unfolds. Consumer confidence, unemployment numbers and inflation have been in the news recently, and while those factors certainly impact the cost of residential home loans, there are other upcoming changes in the industry that aren’t as well known. I asked Jaxzann Riggs, owner of The Mortgage Network, to elaborate.

The Federal Housing Finance Agency (FHFA) has announced changes that will affect the cost of home ownership for many borrowers starting in March.

Established in 2008, FHFA was created to restore confidence in the mortgage market and to provide supervision and regulation over Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. FHFA has made it their mission to prevent a repeat of the housing collapse and promote stability so that Americans can buy homes with confidence, especially those within underserved communities.

FHFA has announced targeted changes to Fannie Mae (FNMA) and Freddie Mac (FHLMC) pricing by eliminating added interest rate adjustments called Loan Level Price Adjustments (LLPAs) for certain borrowers and affordable mortgage products. There are requirements to qualify, but one example would be first-time homebuyers who are at or below 100 percent of the area median income (AMI) in most of the United States and below 120 percent of the AMI in high-cost areas such as Denver.

Traditionally, LLPAs have been added to interest rates to account for higher risks such as lower credit scores, low down payments, and property types, such as condominiums. Eliminating these LLPAs can lower the offered interest rate by up to 1.75%, which makes a substantial difference in a monthly mortgage payment. These changes will help to make home ownership easier for underserved and first-time buyers.

To support FHFA’s priorities, lenders will offer new mortgage programs that allow individuals to make down payments of only 3% and, in an effort  to help first-time and lower-income buyers enter the housing market, a portion of the 3% down payment can actually be borrowed.

While Fannie Mae, Freddie Mac, and FHA are reducing the interest rates being offered to first-time and lower-income buyers, they are increasing the interest rates being charged to other home buyers. We have already seen a dramatic increase in the cost of loans for individuals purchasing a second home or investment property, and additional increases are expected in the next couple of months. These changes signal a significant shift in lending philosophy. At the height of the COVID crisis, the cost of mortgages for second homes and investment properties was identical to that for primary residences.

Currently the price differential between an owner-occupied home and an investment property is over a full percentage point, making real estate investing much more expensive than in recent years.

While credit scores have influenced the cost of money for over a decade, Fannie Mae and Freddie Mac will now increase interest rates for those with mid-level FICO scores. In the past, the percentage of income (debt to income ratio or DTI) that a borrower used for housing had no impact on the cost of the loan. Soon a borrower’s DTI ratio will be factored into the cost of loan — the higher the DTI, the higher the rate.

You may have questions about the changes. Do you qualify? What is the best loan option for your personal circumstances? Reach out to Jaxzann Riggs of The Mortgage Network, 303-990-2992, for answers.

It’s Suddenly Much Easier to Qualify for a Refinance of Your Home Mortgage

Refinancing has been all the buzz this year. Many homeowners have taken advantage of record-low rates to refinance their homes. Unfortunately, lower-income borrowers, especially those who lost income streams due to Covid-19, were unable to refinance because of income requirements. According to the Federal Housing Finance Agency (FHFA), over two million families could not refinance in 2020 when they might have benefited from it. As of June 5, 2021, this is no longer the case. Lower-income homeowners may now potentially save hundreds of dollars per month on their mortgage under a government initiative called “RefiNow.”

I spoke with Jaxzann Riggs of The Mortgage Network to learn about this program.

We have all heard the term “refinancing,” but you may not know why someone might consider refinancing. Homeowners choose to refinance their mortgage for different reasons. Refinancing your home could allow you to secure a lower interest rate, which lowers monthly payments, to shorten the duration of your mortgage, to switch to a fixed-rate mortgage, or to access equity.

While refinancing may sound ideal for your situation, the process and guidelines post-COVID have been quite strict and restrictive. One important factor in qualifying for refinancing is your debt-to-income (DTI) ratio. Your DTI is the percentage of your gross monthly income that you pay each month towards your debt and other obligations, including mortgage, minimum credit card payments, car loans, and student loans. Traditional loans require DTI to be under a certain threshold to refinance — typically under a maximum of 44%. Many people, especially service industry workers and small business owners, lost their jobs and sources of income during the pandemic, and the regulation regarding DTI was an obstacle to refinancing. RefiNow may be able to change that.

RefiNow, Fannie Mae’s new refinance option, makes it easier for homeowners earning at or below 80% of their area median income (AMI) to refinance at a lower interest rate to reduce their monthly payment. This new program is designed to lower the barriers that keep low-income borrowers from refinancing, which have historically resulted in those borrowers refinancing at a slower pace than higher-income borrowers. With RefiNow, you are allowed to have a DTI of up to 65% (instead of 44%) and you will be given an appraisal credit of up to $500. The new program does not just benefit homeowners, it helps lenders because it improves the probability that homeowners who may have been struggling to make their current payments will be able to make future payments, resulting in fewer pandemic related foreclosures. Don’t despair if your loan is owned by Freddie Mac (FHLMC). Freddie is slated to offer a similar loan program in the next few weeks.

To qualify for RefiNow, you must have:

> A Fannie Mae-backed mortgage secured by a one-unit, principal residence. Unsure? Go to

> A current income at or below 80% of the Area Median Income (AMI) This varies by census tract, but your lender can look this up for you.

> Not have missed a mortgage payment in the past six months, and no more than one missed mortgage payment in the past 12 months.

> A debt-to-income ratio of 65% or less, and a minimum 620 FICO score (minimum 660 FICO score for manufactured homes).

> A reduction of at least $50 per month on the new loan and you may not access any of your equity.

If you are not sure if a RefiNow loan is right for you, reach out to Jaxzann Riggs at (303) 990-2992 with any questions and to discuss your best options.