Credit Risk Sharing Commentary

Additional information regarding Fannie Mae’s High Loan-to-Value (LTV) Refinance Option

FHFA today announced additional details for the Refinance programs for High LTV Borrowers initially announced in August 2016. Fannie Mae is sharing the following additional details about its high LTV refinance option, at the direction of FHFA and in coordination with Freddie Mac.

  • The high LTV refinance option provides limited cash-out refinance opportunities to borrowers with existing Fannie Mae mortgages who are making their mortgage payments on time, but whose LTV ratio for a new mortgage exceeds 95% for a one-unit principal residence or exceeds the maximum allowable LTV ratio for a limited cash-out refinance for other segments as listed in the Eligibility Matrix1.
  • Once enacted, the option will apply to mortgage loans owned by Fannie Mae that are originated on or after October 1, 2017.
  • At least 15 months have passed from the Note Date of the loan being refinanced to the Note Date of the new loan for the loan to be eligible for the option.

As previously announced, under the high LTV refinance option, as with the Home Affordable Refinance Program® (HARP®), the refinance must provide one or more of these borrower benefits:

  • Reduced monthly payment
  • Lower interest rate
  • Shorter amortization term
  • More stable mortgage product, such as moving from an adjustable-rate mortgage to a fixed-rate mortgage

This option differs from HARP, since borrowers may use the high LTV refinance option more than once as long as all other requirements, including seasoning and payment history, are met.

The goal of this refinance option is to have in place a proactive approach that can be used by borrowers who are current on their mortgages during an economic environment in which such borrowers have experienced both a decline in the value of their home and it can be demonstrated that such borrower will receive a benefit from refinancing under this option. Final details about the high LTV refinance option are expected to be released later this year.

Applicability to Credit Risk Transfer

Fannie Mae will make prospective changes to future Connecticut Avenue Securities (CAS) and Credit Insurance Risk Transfer (CIRT) transactions to accommodate the new high LTV refinance option.  Once the CAS and CIRT (CRT) changes take effect, mortgage loans that are covered in Fannie Mae’s CRT programs and that are refinances under the high LTV refinance option will continue to maintain coverage. Fannie Mae will update its credit risk transfer programs to account for this “continuance of coverage” model, which will be applicable on a go forward basis for CAS deals that reference loans with origination note dates on or after October 1, 2017 and for CIRT deals as per the respective insurance arrangements. Today’s announcement does not impact existing CRT deals and we are not retroactively changing the terms of existing deals.

For additional information, please refer to the fact sheet that describes the applicability of the high LTV refinance option for CRT.

Historical data
In conjunction with this announcement, we have released additional historical performance data within our Single-Family Loan Performance Dataset. The dataset now includes loans that are part of Fannie Mae’s Single-Family Historical Loan Performance Dataset that were subsequently refinanced through the HARP program. The dataset is designed to provide the market with the ability to analyze the performance of approximately one million mortgage loans that became eligible for and subsequently refinanced through the HARP program in order to help the market to assess how loans might perform as part of the new high LTV refinance option. While we have provided the HARP dataset, the new high LTV refinance option differs from HARP, due to features such as the eligibility date, the LTV ratio requirements, and because borrowers may use the high LTV refinance option more than once as long as all other requirements, including seasoning and payment history, are met.

You can access the dataset and supporting documents here.

For any questions, please contact the Fannie Mae Investor Help Line at 1-800-232-6643, Option 2 or by e-mail.

1See Fannie Mae’s Eligibility Matrix
Home Affordable Refinance Program®, HARP® and the HARP logo are federally registered trademarks of the Federal Housing Finance Agency.