FMERR 2020 guidelines and eligibility: Freddie Mac Enhanced Relief Refinance Program

The FMERR mortgage relief program expired September 30, 2019, so it is currently unavailable in 2020. We will keep this post updated in case Freddie Mac extends this popular refinance. The Fannie Mae version of this program, called the High LTV Refinance Option (HIRO), is still available in 2020. Click here for details on that program.

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.

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.

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 option, 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 eliminates loan-to-value maximums for this loan type.

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

Who qualifies for the FMERR initiative?

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 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 / 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: 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 max LTV if you have a fixed-rate mortgage now.

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

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.

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.

Mortgage relief refinance programs for 2020 (FMERR replacements)

As we mentioned above, the FMERR program ended in 2019. But there’s a new mortgage relief refinance program for 2020, offered by Fannie Mae.

This new mortgage relief program is called the High LTV refinance option, or “HIRO.” It’s available for homeowners with high mortgage balances and very little equity, whose current loans are backed by Fannie Mae.

Just like FMERR, the HIRO mortgage relief refinance can help you secure a lower mortgage rate even without enough equity for a traditional refinance.