Cash-out refinancing easier for furloughed workers, just in case the government shuts down again in February

Aly J. Yale
Aly J. Yale
The Mortgage Reports Contributor
January 26, 2019 - 2 min read

Help is on the way

Though the shutdown has temporarily ended — at least for three weeks — it’s no secret that the 800,000 furloughed federal workers affected by the 36-day government shutdown are struggling financially. Fortunately, three industry players have stepped up to help.

President Donald Trump signed a temporary funding bill that keeps the government’s lights on until February 15. In case a permanent agreement is reached, hundreds of thousands of workers face another shutdown.

Fannie Mae, Freddie Mac and Better Mortgage have all announced plans to help furloughed workers — at least those who own a home — more easily qualify for a cash-out refinance during the previous shutdown. They can then use that cash toward bills, expenses and any other costs they’ve incurred.

Presumably, these companies will keep the same options open if the government closes for business once again.

How Fannie & Freddie’s changes make it easier

A cash-out refinance has always been an option for furloughed federal workers in a bind, but until recently, the process wasn’t an easy one. They had to offer up proof of income (when it’d been weeks since their last paycheck), as well as have their employment verified (when many times, their bosses or entire departments were no longer in the office).

As a result, Fannie Mae and Freddie Mac have made some changes to help federal employees secure refinancing amidst all the challenges they face.

To start, they’ve modified the proof of income rules. Rather than needing the 30-day pay stubs typically required, the GSEs will now accept the borrowers’ most current pay stub, as long as it shows their total year-to-date earnings.

The shutdown and your government mortgage: How it will affect FHA, VA and USDA loans

They’ve also removed the verification of employment step. Lenders should try for verbal verification if possible, but if they’re unable, a written statement outlining their attempts will suffice.

To lessen the risk of these loans, Fannie and Freddie also added a reserves requirement for cash-out borrowers. They must have enough cash (or assets) to cover their mortgage payment (plus taxes and insurance) for two months.

Mortgage shutdown problems: If you’re furloughed and face a late mortgage payment

Better Mortgage’s shutdown refi

Better Mortgage has done Fannie and Freddie one better. Last week, the lender announced its Shutdown Relief Emergency Refi — a program designed just for affected government workers.

The program offers a no-cost refinance option for furloughed workers across D.C., and the 27 states where Better does business. Borrowers don’t have to make a payment on their refi until 30 days after the furlough ends, which could help alleviate cash flow issues while workers await their next paycheck (or their promised backpay).

To be eligible, applicants must be a furloughed government employee, have a FICO score of at least 620, have at least 5 percent equity in their home and have a maximum debt-to-income ratio of 50 percent. Contract and full-time employees can apply.

The bottom line

Government workers have options during these trying times. Whether through a Fannie or Freddie-backed loan or Better Mortgage’s latest program, a cash-out refinance can help struggling federal employees stay afloat until the government reopens.

Are you impacted by the shutdown? Then shop around and see what cash-out refinance rates you qualify for today.

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