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Fannie and Freddie to allow 125% LTV loans!!!

June 19, 2009 – Comments (1) | RELATED TICKERS: GAP

I cannot believe this...    Can you imagine the default rate on these new loans?  

I guess it's ok since all the risk falls to the government, right?    :)

Every time I think they have hit the lowest level of stupid they prove me wrong.

Obama Mortgage Refinancing Program May Expand, Lockhart Says

By Dawn Kopecki and Jody Shenn

June 19 (Bloomberg) -- President Barack Obama’s program to help more homeowners refinance may be expanded to include borrowers who owe more than 105 percent of their homes’ values, Federal Housing Finance Agency Director James Lockhart said.

The Obama administration is considering allowing Fannie Mae and Freddie Mac to refinance loans with current loan-to-value ratios of 125 percent or higher, Lockhart said at a National Association of Real Estate Editors Association conference in Washington yesterday.

The Home Affordable refinancing program, announced Feb. 18, is part of the U.S. government’s efforts to stem soaring foreclosures and bolster consumer spending.

The 125 percent level on loan-to-values would preserve the ability of Fannie Mae and Freddie Mac to package and sell the debt into so-called real estate mortgage investment conduits, he said. While 125 percent loan-to-value ratio is on the table, Lockhart said “it’s not necessarily the number we’re going to end up with.”

The program has been “seeing a slowdown” as mortgage rates increase, he said. The average rate on a typical 30-year fixed loan was 5.38 percent this week ended yesterday, according to McLean Virginia-based Freddie Mac. The rate is up from a record low of 4.78 percent at the end of April.

Under the program, borrowers with loans already owned or guaranteed by Washington-based Fannie Mae or Freddie Mac who have loan-to-value ratios of 80 percent to 105 percent and aren’t delinquent can refinance without buying mortgage insurance, or paying for more insurance than they already have.

Warehouse Lending

Lockhart also said yesterday that his agency, the companies’ regulator, is looking at ways for Fannie Mae and Freddie Mac to help the so-called warehouse lending market, which provides financing to smaller, independent mortgage companies, amid a credit crunch.

While Fannie Mae and Freddie Mac are prohibited by law from lending directly to other firms, Lockhart said they may be able to provide the market some liquidity by committing to purchase multifamily and other loans. The U.S. seized Fannie Mae and Freddie Mac and put them under FHFA’s control in September.

Dow Jones and Bankrate.com reported the comments earlier.

To contact the reporter on this story: Dawn Kopecki in Washington at dkopecki@bloomberg.net; or Jody Shenn in New York at jshenn@bloomberg.net.

Last Updated: June 19, 2009 11:39 EDT

 http://www.bloomberg.com/apps/news?pid=20601087&sid=al5p85mlike0