During the Great Recession, more than 30% of homeowners owed more than their homes were worth. Thankfully, this recession has passed and the economy is now on an upswing.
But many Americans are still underwater on their mortgages. Approximately 4.5 million Americans owe more than their homes are worth.
Programs like HARP rolled out in 2009, helping many underwater homeowners refinance their mortgages. HARP expired in 2018, leaving a gap in the mortgage market.
Freddie Mac saw the need and created FMERR. This program helped homeowners who were not eligible under traditional refinancing terms.
Keep reading to learn more about the FMERR program.
1. FMERR Meant Relief
FMERR stands for the Freddie Mac Enhanced Relief Refinance mortgage. Freddie Mac developed the program to offer financial relief to homeowners who owed more on their homes than their homes were worth.
This program exists specifically for homeowners who make their payments. If you’re a homeowner who religiously pays your mortgage, then you qualify. It rewards people who stay true to their lenders by making payments on time.
It also offers relief if your home’s value has dipped since you purchased it.
The real estate market fluctuates with the economy. So when the economy tanks, the real estate market can as well.
That’s what happened in 2008. When the economy took a downturn, home values plummeted. As a result, many homeowners suffered.
Older homeowners, in particular, felt the hit. These individuals had spent decades improving their homes, creating a nest egg they could sell eventually at retirement. Suddenly, their homes lost value.
Relief programs like HARP in 2009 and now FMERR exist to help with this problem.
2. HARP Mortgages Disqualify You
If you took advantage of HARP anywhere from 2009 to 2018, you are not eligible for FMERR. Your existing mortgage may have originated as part of HARP or any other relief refinance mortgage. If this is the case, you cannot apply for this relief program.
3. There’s Limited Maximum LTV Ratio
An LTV ratio is the loan to value ratio. Mortgage companies determine the LTV value by comparing the mortgage amount to the value of the home.
So if your home value has gone down below what you owe on your mortgage, you’ll have a high LTV.
For example, you could have a mortgage of $100,000, but your home may only be worth $90,000. The LTV formula would divide 100,000 by 90,000. So your LTV would be 111%.
FMERR has no maximum LTV ratio limit if you have a fixed-rate mortgage. If you have an adjustable-rate mortgage, the maximum LTV ratio is 105%.
There is a minimum LTV ratio though. The FMERR exists for people who are severely underwater in their mortgage. So a low LTV would mean you do not owe more than what your home is worth.
The minimum LTV ratio depends on the type of home you have and the number of units:
- Primary residence with 1 or 2 units has a 97.01 minimum LTV ratio.
- Primary residence with 3 or 4 units has an 80.01 percent LTV ratio.
- Secondary residence with 1 unit has a minimum of 90.01 percent.
- Investment property with 1 unit has a minimum ratio of 85.01%.
- Investment property with 2 to 4 units has a minimum ratio of 75.01%.
If you fall below this minimum restriction, you qualify for other Freddie Mac programs.
Typical lenders require you to have a high loan-to-value ratio. So even if you’ve not seen your home value go up or if you’re not upside-down in your mortgage, you can get a lower interest rate with FMERR.
4. FMERR Has Requirements
For one, to qualify for FMERR, your loan needs to be owned by Freddie Mac. It also needs to have originated after October 1, 2017.
So the FMERR program is for recent home buyers.
The loan financing should be seasoned at least 15 months. In the mortgage world, that means you’ve been paying your mortgage for 15 months.
This way, Freddie Mac can best see if you’re a good risk. If you’ve paid your mortgage payments faithfully and on time, then you might qualify.
You need to be current on your mortgage payments with no late payments in the past six months. You also should have no more than one 30-day late payment in the last year.
Most mortgage companies require you to have a minimum credit score. The FMERR does not. You do not need a credit score of 720.
In fact, you do not need a minimum credit score to qualify at all. You do, however, need to have a verifiable source of income.
One Last Qualification
If you qualify under all of these conditions, there’s still one more requirement: you must benefit from the FMERR. The FMERR should benefit you in one of the following ways:
- Reduction in principal and interest payments monthly: You need to be paying less each month on your principal and interest payments. This means more money for paying off other debts or just feeding your family.
- Lower interest rate: You could benefit from a lower interest rate than your current loan. This would also put more money in your pocket eventually.
- Shorter amortization term: Amortization is mortgage-speak for the time that your payments are spread out. So if you move from a 30-year loan to a 15-year loan, you have a shorter amortization term.
- More stable loan product: If you currently have an adjustable-rate mortgage and move to a fixed-rate mortgage, you end up with a more stable loan product; you have regular payments that do not change. This is a definite benefit.
5. FMERR Is One Solution
FMERR expired in September 2019. It did its job well, replacing HARP for a short period of time after they expired in 2018.
When HARP died, relief did not. You can still refinance with other programs.
Stay Informed, Save Money
Now that you know more about FMERR, you can make an informed decision on your own refinancing.
For all of your mortgage needs, contact us.