When refinancing a mortgage under the current government mortgage modification program, all original borrowers must remain on the new loan and application. These programs known as DU Plus and Freddie Plus were designed to help people who have loans [at high interest rate or high loan to values] refinance to obtain a more palatable payment plan. This was designed  to avoid foreclosure of the loan and give the borrowers a renewed ability to continue with making payments.

 

One of the rules of this program are both borrowers [who were on the original mortgage application] must be on the new application, unless one has since deceased.  The issue here is if one borrower is now in a financial quandary due to loss of employment or other disaster, they may be rejected for the mortgage. This is true, even if they remain on the mortgage and the other person call qualify on their own.  Not allowed.

Another example of a bad situation is divorce. If there is a divorce and one person is buying the other out of the marital home, they will not be able to benefit from the new program. Thus, even if they qualify for the DU Plus Program on their own they would have to go for conventional financing anyway. A problem would arise if there was a value issue, etc.

Unfortunately, the DU and Freddie Refi Plus Programs are not full proof. They were designed to help the most needy in a straight forward manner and perhaps eliminates all other situation to avoid folks finding loopholes to benefit themselves outside of the box. Although my firm has not done many of these loans, we have found the programs to be difficult and limited. The Freddie Refi Plus program, honestly is not so great and probably will eliminated soon.

Dale Siegel