If you recall, part of the government overhaul of the mortgage industry was to allow homeowners to refinance their current mortgage in order to lower their monthly payments. There were three major rules to follow: (1) the loan had to be owned by FannieMae or FreddieMac, (2) there could be no PMI and (3) the first mortgage could not be higher than 105% of the house value. Those were the guidelines. Fannie said that they would refi any loan regardless of which bank held the existing loan and which bank was the new (refi) lender. So, you could refinance a Bank of America loan with Wells Fargo if you met the criteria above. FreddieMac, on the other hand said that they would only do a refinance with the existing servicing lender. In other words, Bank of America had to be refinanced with Bank of America. Of course, BofA loved this, but Wells Fargo and the other lenders did not. There were many Fannie refi’s moving around, but not many Freddie loans due to this stalemate. In October 2009, FreddieMac will allow any lender to refi an existing loan (not currently being serviced by them) under the Relief Refi program, as long it meets the criteria. However, the lenders have the right to choose not to participate in the program. So, each bank can choose to only offer loans under the Freddie Mac Relief Program if the loan is being serviced by that same bank. Wells Fargo is one of the lenders (and one of the biggest lenders) to choose not to participate in the program. This choice may be based on loss of business rather than helping current homeowners obtain a lower mortgage payment. Again, the government makes the rules, but the lenders decide how to play them.

Posted: Dale Robyn Siegel