HARP 2.0 – Fannie Mae vs. Freddie Mac

HARP 2.0 – Fannie Mae vs. Freddie Mac

Both Fannie Mae and Freddie Mac offer their own version of HARP 2.0: Fannie Mae Refi Plus and Freddie Mac Relief Refinance Mortgage – Open Access.

President Obama clearly stated that the goal of HARP is “to provide access to low-cost refinancing for responsible homeowners suffering from falling home prices.” And since both Freddie Mac and Fannie Mae are backed by the federal government, one would assume both HARP 2.0 programs would be equal. They are not.

While both offer unlimited loan-to-value (LTV), appraisal waivers, and mortgage insurance flexibilities, there are distinct differences that give homeowners with existing Fannie Mae loans an advantage over those with Freddie Mac loans.

Qualifying Standards

Fannie Mae and Freddie Mac have separate automated underwriting systems (AUS) that issue loan approvals. These AUSs base their decisions on a combination of factors such as value, debt ratio, credit score, credit history, and assets.

Meridian structures hundreds of HARP loans every month. And it is clear to us that Freddie Mac’s AUS is stingier when it comes to approving HARP loans than Fannie Mae’s AUS. There are a couple of reasons for the disparity.

First, Freddie Mac’s AUS is pretty cut and dry. It either issues a HARP approval or it issues a denial. Fannie Mae’s AUS issues HARP approvals and denials too. But it also has three expanded approval levels for borrowers who don’t qualify for the main level. This gives Fannie Mae borrowers an overall better opportunity to qualify for a HARP loan.

It is also clear that Freddie Mac is far less likely to issue a HARP approval with poor qualifying factors such as higher debt ratios and lower credit ratings. Fannie Mae, in contrast, takes a much broader view of a person’s ability to repay their mortgage. And this results in more approvals.

Fannie Mae also seems to give more weight to compensating factors like assets, low ratios, and equity.

Appraisal Waivers

Even though HARP 2.0 allows unlimited LTV, value still matters. Not every high-equity or no-equity loan is approved. As mentioned above, other factors are taken into account when issuing an approval.

Still, value can act as a compensating factor for borrowers who have low scores or high debt ratios.

Both Fannie Mae and Freddie Mac run automated value models (AVM) that estimate the value of a home (although a value is not found for every home). AVMs are statistically-based computer programs that generate an estimated value for a property. But these values are not precise.

Fannie Mae recognizes this fact and allows for a variance. An appraisal waiver is granted as long as the stated appraised value is within 120% of the AVM value.

Freddie Mac allows no such variance. In order to obtain an appraisal waiver, the value on the application must match the AVM value. And the AVM value must receive a medium or high confidence rating in order to be used at all, which is not automatic.

This gives borrowers with Fannie Mae loans an advantage when applying for a HARP 2.0 refinance. It also increases their chance of not having to pay for an appraisal.

Loan Amount Limit

Fannie Mae Refi Plus allows all lender fees, escrow impounds, and 3rd party title fees to be financed into a new HARP loan.

Freddie Mac Open Access only allows the lessor of 4% of the loan amount or $5,000 to be financed into a loan. This often results in borrowers having to bring money to closing, even when lenders charge no points and zero closing costs.

Changes on the Horizon

Freddie Mac has announced that it may soon loosen its qualifying criteria. And this makes sense. If HARP 2.0 is truly meant to help “responsible homeowners suffering from fallen home prices,” then it needs to be uniform and fair.

Homeowners should not face a tougher approval battle just because their mortgage happens to be backed by Freddie Mac instead of Fannie Mae.

Meridian offers both HARP 2.0 programs. Our expert staff has approved hundreds of HARP loans through both Fannie Mae and Freddie Mac. Call today to speak to a Personal Advisor who can answer all of your HARP 2.0 questions.