Freddie Mac Guidelines: Relief Refinance Mortgages (Discontinued)

Why This Program Was Created and Discontinued

The Freddie Mac Relief Refinance Mortgages Open Access program launched during the housing crisis to help homeowners who owed more on their mortgages than their homes were worth. These "underwater" borrowers couldn't refinance through traditional channels because they failed loan-to-value requirements.

The program allowed eligible homeowners to refinance up to 105% of their home's current value, even when they owed significantly more than the property was worth. This gave underwater borrowers access to lower interest rates without requiring them to bring cash to closing to reduce their loan balance.

By 2019, housing markets had largely recovered from the crisis. Home values had risen substantially in most areas, and fewer homeowners found themselves underwater. Fannie Mae discontinued the program because the need had diminished and other refinancing options had become available.

What Homeowners Need to Know Now

If you're researching this program because you're underwater on your mortgage, you still have options. The discontinuation of this specific program doesn't mean relief refinancing disappeared entirely.

Fannie Mae offers the High LTV Refinance Option for borrowers who are current on their payments but have limited equity. This program allows refinancing up to 97% loan-to-value for fixed-rate mortgages and 95% for adjustable-rate mortgages.

You might also qualify for the FHA Streamline Refinance program if your current loan is FHA-insured. This program has minimal documentation requirements and doesn't require a new appraisal in many cases.

Documents You Would Have Needed

When this program was active, borrowers needed to provide standard refinancing documentation. The streamlined nature of the program reduced some requirements, but lenders still collected basic financial information.

Required documents typically included recent pay stubs, tax returns from the previous two years, and bank statements. Borrowers needed to demonstrate stable employment and sufficient income to support the new mortgage payment.

The program waived traditional appraisal requirements in many cases, relying instead on automated valuation models. This reduced closing costs and processing time for eligible borrowers.

Property documentation included homeowner's insurance information and property tax records. Lenders verified that borrowers were current on their existing mortgage payments and had no recent late payments.

Why the Guidelines Were Structured This Way

Fannie Mae designed this program with specific guardrails to manage risk while providing relief to struggling homeowners. The loan-to-value limits prevented excessive leverage while still helping underwater borrowers.

Payment history requirements ensured that borrowers had demonstrated their ability to make mortgage payments consistently. This reduced the risk of default on the new loan, even though borrowers had limited equity.

The program's streamlined documentation requirements recognized that many underwater borrowers had stable incomes and payment histories. Extensive re-verification of financial information wasn't necessary when borrowers were simply seeking better terms on existing debt.

Geographic and property type restrictions focused the program on areas and loan types where it would be most effective. Single-family homes in certain markets received priority because they represented the largest segment of underwater borrowers.

Common Issues That Arose

Borrowers often discovered they didn't qualify because their existing loan wasn't owned or guaranteed by Freddie Mac. The program only applied to loans in Freddie Mac's portfolio, which excluded many borrowers who assumed they were eligible.

Property value declines sometimes pushed borrowers above the program's loan-to-value limits between application and closing. Rapidly changing market conditions could disqualify borrowers who initially appeared eligible.

Some borrowers found that their savings from lower interest rates were offset by new mortgage insurance requirements. The program's structure sometimes required mortgage insurance on loans that previously didn't carry this cost.

Timing issues created problems for borrowers who waited too long to apply. As the program's end date approached, lenders faced capacity constraints and couldn't process all applications before the deadline.

Current Alternatives for Underwater Borrowers

Homeowners who are underwater today should explore current refinancing programs rather than searching for discontinued options. The High LTV Refinance Option provides similar benefits for many borrowers who previously would have used the Relief Refinance program.

FHA cash-out refinancing allows borrowers to access up to 80% of their home's value, which may provide relief for those with limited equity. VA Interest Rate Reduction Refinance Loans offer streamlined refinancing for eligible veterans.

Some lenders offer portfolio programs for borrowers who don't qualify for agency programs. These loans stay on the lender's books rather than being sold to Fannie Mae or Freddie Mac, allowing for more flexible underwriting.

State and local housing finance agencies sometimes offer specialized refinancing programs for underwater borrowers. These programs vary by location but may provide additional options for homeowners who don't qualify for federal programs.

References

For the official guidelines, see 4303.2: Freddie Mac Relief Refinance Mortgages℠ — Open Access: Eligibility requirements, eligible Mortgages and ineligible Mortgages in the Fannie Mae Selling Guide.