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Freddie Mac Enhanced Relief Refinance (FMERR) 2019 guidelines, rates, and benefits

Peter Miller
The Mortgage Reports contributor

What is FMERR?

The Freddie Mac Enhanced Relief Refinance – or FMERR – is for borrowers who want to refinance but have very little or no equity in their homes. In reality, it’s for homeowners who have done all the right things but have not benefited from rising home values. The result is not enough equity to refinance at a lower rate. FMERR fixes this.

Check your FMERR eligibility with top lenders here. (Mar 23rd, 2019)

The FMERR LTV advantage

Why is Freddie Mac worried about borrowers with little equity? After all, haven’t home prices increased? The National Association of Realtors (NAR) reported that average existing home prices reached $247,500 in January – the 83rd straight month of year-over-year gains.

The catch is that home values are not rising everywhere. Buried beneath the average figures is the reality that sale prices within some areas are actually falling.

In fact, home prices are falling in some areas. NAR figures show that in the fourth quarter of 2018 existing home values rose in 163 out of 178 metropolitan statistical areas (MSAs). That also means home prices fell in 15 metro areas.

Falling prices mean less equity. For instance, if your home is worth $250,000 and you have a loan for $245,000, you have almost no equity — not enough to refinance.

In some cases, the result is that homeowners are stuck paying mortgage rates one to two points higher than what’s available in the market.

Shop FMERR rates from top lenders. (Mar 23rd, 2019)

Freddie Mac Enhanced Relief Refinance lets you refi with a high loan-to-value

Under the Freddie Mac Enhanced Relief Refinance, you can refinance a single-family home at current market rates if you have little to no equity. So if rates drop, refinancing is still an option for you.

With the FMERR program, you can refinance even if the property is upside-down, meaning the value of the home is lower than the outstanding debt.

That’s right. If your home is worth $300,000 and you owe $310,000, you can still refinance with FMERR if you meet other guidelines.

Most loan programs are notoriously conservative but Freddie Mac loan to value rules are as follows:

  • The new loan is an adjustable-rate mortgage (ARM): Loan-to-value maximum of 105%
  • The new loan is a fixed-rate loan: No maximum LTV

For instance, your home is worth $100,000 and you owe $110,000. You couldn’t get a new ARM (110% LTV) but you could get a new 30- or 15-year fixed refinance.

Who qualifies?

A FMERR can be a big money saver but only recent borrowers qualify. Several requirements for borrowers to get a Freddie Mac Enhanced Relief Refinance must be met. Eligibility is as follows.

  1. Your loan-to-value is at least 97.01% for a one-unit, owner-occupied residence
  2. Freddie Mac has to own the loan. To check go to the Freddie Mac Loan Look-up Tool.
  3. Your current loan must be fairly recent. It has to have been originated on or after October 1, 2017.
  4. Your current financing must be “seasoned” at least 15 months. The day your current loan was originated and the date of the new financing must be at least 15 months apart.
  5. The program will expire later this year. You must close before September 30, 2019.

So, let’s say you purchased a home and closed on October 15, 2017. You have a $250,000 loan, but the home is worth $240,000. You’d like to refinance because rates have dropped.

You would be eligible for the FMERR program as of January 15, 2019.

Loan-to-value ratio minimums

Unlike most loan programs, the FMERR loan comes with minimum LTV requirements. In other words, you can’t have too much equity or you won’t qualify.

Minimum LTVs are as follows.

  • Primary residence
    • 1-unit: 97.01% LTV
    • 2-unit: 85.01%
    • 3-4 unit: 80.01%
  • Second home
    • 1-unit: 90.01%
  • Investment property
    • 1-unit: 85.01%
    • 2-4 unit: 75.01%

Keep in mind that these are LTV minimums, not maximum. There is no LTV max unless you are getting a new adjustable-rate loan such as a 5/1 ARM or 7/1 ARM. In this case, maximum LTV on the new loan is 105%.

This program is truly unique: you have to have very little equity to qualify.

You must benefit from the refinance to be eligible

There’s no sense refinancing unless you obtain a real and material benefit.

In the case of a Freddie Mac, Enhanced Relief Refinance borrowers lenders will want to see one or more improvements in your financial situation. Such benefits include a lower mortgage rate, a smaller monthly payment, a changed amortization term, and a switch from an ARM to less risky fixed-rate financing.

Payment history and the FMERR

If Freddie Mac is going to buy your mortgage from a lender it wants to know that you have a good payment history. In terms of the Freddie Mac Enhanced Relief Refinance, that means no 30-day delinquencies during the most recent six months and not more than one 30-day delinquency in the past 12 months.

However, lenders have the right to be more strict and may not allow any late payments in the last 12 months.

Is FMERR a HARP replacement program?

Essentially, yes. HARP was created to help people refinance, drop their payments, and stay in their homes despite falling home values. FMERR does the exact same thing, but with slightly different guidelines and eligibility requirements.

What about credit scores?

There is no minimum credit score to be eligible.

The FMERR replaces an existing loan with new financing. It is a streamline program and thus no need to have a given credit score.

What is the maximum debt-to-income ratio?

There is no maximum debt-to-income (DTI) ratio. So even if you’ve experienced a loss of income, you could still qualify.

However, the lender is required to prove a 45% DTI in the following circumstances:

  • The payment will increase by more than 20% (which might happen if you change an adjustable-rate loan to a fixed-rate)
  • A borrower is removed from the loan
  • The loan is a Higher-Priced Covered Transaction (HPCT) or Higher-Priced Mortgage Loan (HPML) which are special classifications of loans where the fees are higher than normally permitted, usually due to a small loan amount. These cases are rare, though.

The debt-to-income (DTI) ratio is typically not an issue because monthly costs will go down or – when replacing an ARM – borrowers will get a fixed monthly cost for principal and interest.

Does FMERR require an appraisal?

No. Lenders can use Freddie Mac’s Home Value Explorer (HVE) tool to determine property value eligibility.

If for some reason the HVE does not return eligible results, you can opt for a standard appraisal. Appraisals typically cost around $400-$500, so trying for an HVE first is the best option.

Get started on your FMERR loan here. (Mar 23rd, 2019)

Can you remove a borrower from the application with a FMERR?

Yes, as long as one borrower remains on the mortgage.

However, additional guidelines apply:

  • The remaining borrower must prove they’ve been making payments on their own for 12 months
  • The borrower must re-qualify for the mortgage with their sole income
  • In case of the death of a borrower, the applicant must supply documentation of the deceased borrower’s death.

Can you use FMERR twice?

“Borrowers,” says Freddie Mac, “can refinance using the Enhanced Relief Refinance offering more than once as long as all requirements, including the 15 months seasoning, are met.”

Can you use FMERR if you’ve used HARP?

If you have already refinanced through the Home Affordable Refinance Program (HARP), you can’t qualify for the new FMERR program.

When does this program expire?

The program is set to expire on September 30, 2019. You must apply 30-60 days before that, though, to make sure you close on or before that date.

What are FMERR rates?

Mortgage rates for the Freddie Mac Enhanced Relief Refinance are low and competitive, but they vary based on the lender. Shop FMERR lenders here to get a rate quote.

Taxes and the Freddie Mac Enhanced Relief Refinance

As a result of the 2017 tax reform legislation, the rules regarding mortgage write-offs have changed significantly. Mortgage interest remains generally deductible but it may not be a deduction you want to take. The reason is that the new standard deduction may give you bigger savings at tax time. Also, if you refinance for more than the property’s fair market value some portion of the mortgage interest may not be deductible. For details speak with a tax professional.

Apply for the FMERR program

Most lenders work with Freddie Mac and can provide additional FMERR information, eligibility, and rate quotes. Get started on your payment reduction as soon as possible, as this program goes away in late 2019.

Apply for your FMERR loan and drop your payments here. (Mar 23rd, 2019)