FMERR 2021 guidelines and eligibility: The Freddie Mac Enhanced Relief Refinance Program

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 eligibility for the FMERR program (Apr 9th, 2021)

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The Enhanced Relief Refinance program

Why is Freddie Mac worried about borrowers with little equity? After all, haven’t real estate values increased?

Unfortunately, that’s not always the case. Home values are up across the U.S. on average. But buried beneath those average figures is the reality that sale prices within some areas have been stagnant or falling.

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 home equity — not enough to refinance.

In some cases, the result is that homeowners are stuck with higher mortgage rates than what’s available today and unaffordable monthly payments. But they’re not eligible to refi by normal standards.

That’s where the Enhanced Relief Refinance comes in.

FMERR lets you refinance with a high loan-to-value

Under the Freddie Mac Enhanced Relief Refinance, you can refinance your home loan at current interest rates if you have little to no equity. So if you don’t qualify for standard mortgage refinance programs, lower rates are still an option for you.

With the FMERR option, you can refinance even if the property is underwater, 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 conventional loan programs are notoriously conservative about loan-to-value ratios (LTVs). But Freddie Mac eliminates LTV maximums for this loan type.

For instance, say your home is worth $100,000 and you owe $120,000. You could get a new mortgage that covers the full amount owed even though it would have a 120% loan-to-value.

Check your eligibility for the FMERR program (Apr 9th, 2021)

Who qualifies for the FMERR program?

FMERR was rolled out as an initiative to help underwater homeowners. It 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 guidelines are as follows.

  1. Your current mortgage must be owned by Freddie Mac. You can find out if it is using Freddie’s loan lookup tool
  2. Your loan-to-value is at least 97.01% for a one-unit, owner-occupied residence
  3. Your current loan must be fairly recent. It has to have been originated on or after November 1, 2018
  4. Your current financing must be “seasoned” at least 15 months. That means the date your current loan was originated and the date of the new loan must be at least 15 months apart
  5. You must have no 30-day late payments in the past 6 months, and no more than one in the past 12 months

Let’s say you purchased a home and closed on November 15, 2018. You have a $250,000 loan, but the home is worth $240,000. You’d like to refinance because rates have dropped.

Despite having little or no home equity, you might be eligible for the FMERR program.

Loan-to-value ratio minimums / maximums

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 (including manufactured homes): 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 maximums. There is no max LTV if you have a fixed-rate mortgage now.

If you currently have an adjustable-rate loan such as a 5/1 ARM or 7/1 ARM, there is a maximum LTV of 105% to qualify for a refinance. According to Freddie Mac, this is because of “special disclosure and reporting requirements” involved with refinancing a high-LTV ARM.

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

The refinance must have a ‘net tangible benefit’

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

In the case of a Freddie Mac Enhanced Relief Refinance, lenders will want to see one or more improvements in your financial situation. This is known as a ‘net tangible benefit.’

To qualify, your new loan must have one or more of the following:

  • A lower interest rate
  • A smaller monthly payment
  • A changed amortization term (for instance, switching from a 30-year mortgage to a shorter-term loan)
  • A switch from an adjustable-rate mortgage to a less risky fixed-rate loan

The goal of a relief refinance is to make your monthly mortgage payments more affordable. But be aware, you could end up paying more in total because refinancing starts your loan over, thus extending the amount of time you’re paying interest.

Payment history and FMERR eligibility

If Freddie Mac is going to buy your mortgage from a lender, it wants to know 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 no more than one 30-day delinquency in the past 12 months.

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

What if Freddie Mac doesn’t own my loan?

Only homeowners whose mortgages are owned by Freddie Mac are eligible for the FMERR program.

If your home loan is owned by Fannie Mae (Freddie Mac’s sister agency) you might be able to use a similar program called the High-LTV Refinance Option or ‘HIRO.’

You can learn more about the HIRO program here.

Many conventional loans not owned by Freddie Mac are owned by Fannie Mae, so it’s worth using Fannie’s loan lookup tool to see if yours is.

But what if your loan is not owned by Fannie or Freddie? What if it’s a government-backed FHA, VA, or USDA loan?

You have options, too. Homeowners with government loans can often use the Streamline Refinance. This low-doc refi program does not require a new home appraisal in most cases.

If your home isn’t appraised, the lender won’t know whether the value has fallen below your current loan amount. So you could be eligible to refinance even if your home’s market value has decreased.

Check your relief refinance program eligibility (Apr 9th, 2021)

Enhanced Relief Refinance program FAQ

Is the Freddie Mac Enhanced Relief program real?

Yes, it is a real program offered via local and national lenders who are Freddie Mac approved. However, be aware of gimmicky advertisements that promise “$3,000 per year savings” and similar claims. The amount you save depends on your current rate, loan balance, and mortgage rates today.

Who qualifies for FMERR?

Homeowners with less than 3% equity in their homes might qualify for FMERR if their mortgage is owned by Freddie Mac. Other requirements to qualify include a reliable mortgage payment history and a “seasoning period” of at least 15 months since you originally took the loan out.

Is FMERR a HARP replacement program?

Essentially, yes. The Home Affordable Refinance Program (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 is a HIRO refinance?

HIRO — the ‘High-LTV Refinance Option — is Fannie Mae’s version of the Enhanced Relief Refinance program. Requirements are very similar, except that your loan must be owned by Fannie Mae rather than Freddie Mac in order to qualify. 

What is “Enhanced Relief Savings for Seniors”?

Advertisements that tout “enhanced relief savings for seniors” are likely talking about FMERR. There is no age restriction, young or old, for this program. Homeowners of any age can qualify, provided they meet eligibility criteria.

Why is FMERR also called the Enhanced Relief Program?

HARP expired in 2018. If not for FMERR (and later, HIRO), there would have been no refinance options for underwater homeowners. This mortgage loan provided relief for homeowners who purchased with a small down payment but still wanted to take advantage of today’s low rates. The program “enhanced” currently available refinance options to make them more flexible at high LTV ratios.

What credit score is needed for the FMERR mortgage relief program?

There is technically no minimum credit score to be eligible for FMERR. The FMERR loan replaces an existing loan with new financing. It is a streamlined program and thus no need to have a given credit score. However, certain lenders may set their own credit thresholds for the Enhanced Relief Refinance. So check with your lender to make sure you qualify.

What is the maximum debt-to-income ratio for a mortgage relief refi?

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); OR a borrower is removed from the loan; OR 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.

Can the new mortgage be an ARM?

Yes, but only if your existing loan is an adjustable-rate mortgage. In addition, the fixed-rate period must be at least 5 years. So you could get a new 5/1, 7/1 or 10/1 ARM, but you could not get a 1/1 or 3/1 ARM.

Can you roll closing costs into the new loan?

Yes. You can pay for closing costs up to $5,000 by raising the new loan amount and/or getting a lender credit. Just be careful not to raise your loan balance too much. While financed closing costs reduce your out-of-pocket expense for the refi, it’s still money you have to pay back eventually.

Can I get cash back from a FMERR loan?

No. A maximum of $250 may come back to the borrower after closing, and only due to unpredictable changes in escrow charges. Any additional funds will be put toward reducing the loan principal.

Can you remove a borrower from the application with 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; and in case of the death of a borrower, the applicant must supply documentation of the deceased borrower’s death.

Can you add a borrower with FMERR?

No. No borrowers may be added to the loan when you refinance with this mortgage relief program.

Can I refinance my home if I’ve converted it to a rental?

Yes. The new FMERR loan does not have to reflect the same occupancy as the original mortgage. So if you purchased a home to live it, and subsequently converted it into a rental, you can use the FMERR program, assuming you disclose that it’s now an investment property.

When does the FMERR program expire?

There is no expiration date for the Enhanced Relief Refinance Program, according to Freddie Mac’s website. 

What are FMERR rates?

Today’s mortgage rates are low, including rates for the Freddie Mac Enhanced Relief Refinance. Your own rate will vary, though, depending on your credit score and other personal circumstances.

Is there a congress mortgage relief program?

The federal government has enacted certain mortgage relief measures during the coronavirus pandemic, including protecting homeowners from foreclosure and allowing them to pause payments via forbearance plans. However, these relief measures are temporary. They do not provide permanent mortgage payment reductions like the FMERR program does.

Is FMERR a federal mortgage relief program?

FMERR is not a federal mortgage relief program. FMERR is a mortgage relief refinance offered through Freddie Mac — which is “government-sponsored,” but not run by the federal government. A similar program from called “HIRO” is available for some homeowners with mortgages owned by Fannie Mae.

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.

Check your Enhanced Relief Refinance eligibility

Homeowners with very little equity still have options to refinance into today’s low rates.

Check your eligibility for the FMERR program today to see if you can refinance and lower your monthly payment.

Verify your new rate (Apr 9th, 2021)