Obama Expands LTV Limits to 125%

WASHINGTON, July 1 (Reuters) - Mortgage finance companies Fannie Mae and Freddie Mac will expand their efforts to prevent foreclosures, and refinance borrowers whose loan-to-value ratio is as high as 125 percent, an administration official said on Wednesday.

Under current rules, the mortgage finance companies may only refinance borrowers whose mortgage loan-to-value ratio is no greater than 105 percent. The new policy is intended to aid more struggling borrowers who have seen their property lose value in the recent years of a housing crisis.

The new program expands a housing rescue plan first outlined by the Treasury Department in February and was meant to lower the costs of home ownership for borrowers who are making timely payments.

Refinancing up to 125% is only available to loans that are already owned or guaranteed by Fannie and Freddie, so the move doesn’t expose the government run companies to any additional risk initially. However, this doesn’t really solve any of the pressing issues in today’s housing market. Mortgage rates have risen roughly .75% in the past month, making a refi a much less meaningful in terms of saving money on monthly payments. In order to qualify for the program the borrower must be current on their mortgage. So it really misses the trouble areas completely. The impact of the program expansion is expected to have little effect considering this only includes 10% of the mortgage market.

Cliff J. Reynolds Jr., Junior Analyst