Mortgage brokers and small lenders say they've been left out of a big part of the Obama administration's plan to help borrowers refinance their home loans and take advantage of near record-low interest rates.
The new guidelines released earlier this month are different for Fannie Mae and Freddie Mac, the government-controlled companies that own or guarantee almost 31 million mortgages — more than half of all U.S home loans. Most strikingly, mortgage loans held by Freddie Mac can only be refinanced by the company that currently collects payments on the loan, known as the mortgage servicer.
Freddie Mac, the No. 2 mortgage finance company with about 13 million loans outstanding, says the policy was established to speed the refinancing process and control costs. But mortgage brokers and smaller bankers say it will reduce the number of homeowners who are likely to be helped. The Obama administration has said the program could enable up to 5 million homeowners refinance into more affordable fixed-rate loans.
But smaller players in the industry say Freddie Mac's policy is likely to wind up limiting competition, meaning borrowers won't necessarily get the best rate. That rankles mortgage brokers, who say they are the primary point of contact for many borrowers.
"The president's got a much better chance of reaching his goal by opening this up to everybody," said Marc Savitt, president of the National Association of Mortgage Brokers.
The refinance program, rolled out by Fannie Mae and Freddie Mac earlier this month, is only offered to homeowners with loans held by the two companies. Consumers have until June 2010 to apply. In recent weeks, mortgage brokers and bankers alike have been sifting through the complex details and trying to line up borrowers who might qualify.
"There's a lot of confusion," said Ginny Ferguson, owner of Heritage Valley Mortgage in Pleasanton, Calif. "Everybody's trying to get their arms around what is eligible, what isn't eligible."
Plus, there are concerns that the biggest industry players aren't geared up to handle the problem.
"If you have millions of consumers that need to refinance, and there are only 10 megabanks who are the outlets ... they just don't have the capacity," said Scott Stern, chief executive of Lenders One Mortgage Cooperative, a St. Louis-based national alliance of more than 120 mortgage bankers. "In many cases, we're just standing on the sidelines not able to help."
Kevin Maruskin, 43, a middle school counselor who lives in Frederick, Md., has been trying to refinance since last December, hoping to lower his mortgage rate from the current 6.25 percent.
However, since his loan is owned by Freddie Mac, he can't refinance through his mortgage broker, Chris Sipe. And his lender has yet to start the process. "I'm just kind of waiting and hoping," Maruskin said.
Sipe, a loan officer with Mason Dixon Funding in Rockville, Md., called the restrictions frustrating. For many longtime clients, he said, "I cannot assist them in any way, shape or form."
However, Patricia McClung, a Freddie Mac vice president, said company executives believe it would be more efficient and less expensive to stick with the current loan servicer, who has control of the original loan files and can execute a refinance easier.
Plus Freddie Mac, unlike Fannie Mae, has cut back on fees to allow more borrowers to qualify. In some cases, Freddie Mac is even waiving requirements for a new appraisal.
"We're really pushing for the most affordable mortgage that we can get," McClung said. "We've made it so simple for the servicer, that they should be able to get this done"
Freddie Mac has refinanced fewer than 1,000 loans under the new guidelines since the plan was rolled out at the start of the month, she said, and there are more than 100,000 in the works.
"There's a lot of borrowers coming into the pipeline" she said. "We're pretty pleased with what we're seeing."
Amy Bonitatibus, a Fannie Mae spokeswoman, said the company has received more than 22,000 refinance applications since it launched the program April 4, but didn't know how many had been approved.
Fannie Mae, she said, lets borrowers choose among more than 1,600 approved lenders. Doing so, she said, "will allow borrowers to negotiate among multiple lenders and bring competition to the process to help them attain the best rate and terms available for their circumstances."
Low rates have sparked a surge in refinancing activity, with nearly 80 percent of new home loan applications coming from borrowers seeking to refinance. Average rates on 30-year fixed-rate mortgages fell to 4.82 percent last week.
The Obama administration, seeking to allow more borrowers to refinance even if they are "under water," earlier this year announced that Fannie and Freddie would allow borrowers to refinance if they owe up to 5 percent more than their home's current value on their first mortgages. Previously, refinances weren't allowed if borrowers owed more than 80 percent of their home's value.
While Fannie and Freddie were seized by government regulators in September, they are being given some leeway to make different business decisions. But some question whether they should be taking such a different approach to a key piece of the Obama administration's agenda.
"It makes no sense whatsoever," Howard Glaser, a Washington-based mortgage industry consultant. "Fannie and Freddie, in effect, are tools of federal policy. The policies should be uniform."