Obama is expanding the homeowner bailout so that underwater homeowners with a 125% LTV ratio can refi more easily through Fannie and Freddie.
Before your LTV ratio could only be 105%, because, well, as we’ve learned, fat loans relative to value are more likely to go bad.
As many have described it, Obama’s solution to the housing crisis is: more subprime loans.
Like the original subprime loans, they’re really only going to work out of home prices grow rapidly over the next few years, otherwise you’re looking at the perpetuation of people living underwater in their homes.
Update: Note that there’s been talk of this program being expanded for a while. HousingWire discussed it last week:
Federal Housing Finance Agency director James Lockhart, in a press conference last week, acknowledged rising mortgage rates pose an issue to the agency refi program. “There’s a big pipeline so it probably won’t hit for a couple months,” he said. “But at some point, if we don’t see some moderation of rates, it could have an impact.”
He also acknowledged the administration is considering expanding the LTV range to cover borrowers with more than 105% LTV, although he would give no exact figure for the new LTV target.
FHFA, Fannie and Freddie’s conservator, has said applying Lockhart’s comment to the effect of 125% LTVs are eligible for sale into Real Estate Mortgage Investment Conduits toward plans for a new refi LTV limit are a misrepresentation of Lockhart’s comments.
Media reports that the LTV limit could top as much as 125% might be speculation, but the idea is catching on, with JP Morgan commentary on the mortgage-backed securities market late last week echoing the figure.
“We expect the proposal to raise the Obama refi LTV limit to 125[%] will have a minimal impact on speeds since only under 10% of the universe could benefit theoretically,” the analysts said.
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