Fannie Mae has announced a new program meant to help borrowers who are "underwater", homeowners who owe more on their homes than the home is presently worth. If these borrowers tried to sell their homes, because of the decrease in value, they would have to bring cash to the closing in order to make up the difference between the sales price and the loan amount. If, instead, they wanted to keep the home but refinance for better rates or terms, they would also be required to add cash to make up the difference between the new appraised value and the old loan amount.
Fannie Mae's new program will refinance mortgages at up to 120% loan to value. It is limited to loans that are paid to date and that Fannie either owns or insures. Fannie estimates that 150,000 homeowners could be helped by such a program.
The thrust of the program is obviously to buy time. Fannie is betting that, by refinancing homeowners, it will assist them in keeping payments current and that in the long-term, house prices will improve. Critics say that this is just pushing today's problem into tomorrow. But given the number of foreclosures, anything that helps with today's crisis is worth trying.
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