Fannie Mae and Freddie Mac are now able to allow up to 125% loan-to-value for existing loan refinances under the Home Affordable Refinance Program. The old limit was 105% loan-to-value. This move should help out borrowers who made their payments on time but were unable to refinance and take advantage of lower rates due to declining values on their homes. In addition the loan must be Fixed and fully amortized for >15 years to a maximum of 30 years. This is for manually underwritten loans only, and Fannie Mae is determining if the desktop underwriting engine should allow loan-to-value ratios above 105%. For more information please visit www.makinghomeaffordable.gov or call 1-800-7FANNIE. For Freddie Mac visit https://www.freddiemac.com/corporate.
We might see more of a surge of home sales and loans if the lenders would loosen up their guidelines a little more. Now I’m not saying that they should go back to the lax underwriting guidelines that contributed to the housing crisis. But given the economy and the inability for the average American to place a decent down payment on their home, lenders can make getting loans a little more flexible.
Risk based: Lenders might want to take a queue from FHA, or the temporarily defunct CALHFA. Yes, they take a little more risk by lending on higher loan-to-values, but they have back it up with reasonable debt ratio guidelines and sound Fixed and Arm products. They don’t make negative amortization loans. And even with those borrowers who have lower fico scores, they compensate the risk with the appropriate rate.
A little flexibility and common sense: If a borrower is refinancing and happens to have very stable employment,excellent credit, low debts, and very low loan-to-value (30%), then let them have a interest-only loan or a 5 year ARM. But if another borrower had a BK discharge on their credit, but the debt ratio was 28%, and the loan-to-value is 90%,then that is someone who maybe could only qualify for a 30 year fully-amortized loan. If the borrowers aren’t qualifying due to the debt ratios, then maybe a 35 or 40 year loan would be the product that would fit.
Get things moving: The lenders are dealing with losses, but they can help on their end by making sound products that help borrowers with purchasing or refinancing. This could save jobs as the lenders are able to make more loans and increase volume. Taking some risks and making sure the products are sound might help to get the financial institutions moving again. 
