GSEs Look to Follow FHA’s Lead on Streamlined Refis by Paul Jackson of HousingWire.com

In a twist of fortune, it appears the GSEs are — for once — looking to follow the lead of the Federal Housing Administration, with their regulator hinting Wednesday afternoon that a plan to allow for streamlined refinancings is under consideration at both Fannie Mae (FNM: 0.67 0.00%) and Freddie Mac (FRE: 0.68 0.00%).

In particular, the GSEs are considering a plan to allow some borrowers to refinance without the use of an updated appraisal.

“If they refinance someone, rather than doing a loan mod, do they need a new appraisal if they already have the credit?” Federal Housing Finance Agency director James Lockhart told reporters after a speech, according to a Bloomberg report. “That’s an issue that’s being discussed. They’re looking at it.”

The same Bloomberg report managed to find analysts, such as Paul Miller at FBR Capital Markets, in a lather over the proposed changes, calling it a “disaster.” Josh Rosner at Graham Fisher & Co. also jumped on the overreaction bandwagon, too. “To refinance loans without any concern for collateral value suggests a world in which no lender would ever hold a loan they refied and no investor would ever buy, unless it carried an explicit federal guarantee,” he told the news service.

Every one of them is missing the point here.

The U.S. Department of Housing and Urban Development has permitted so-called “streamlined refis” without appraisals on FHA loans since the early 1980s, according to a department Web page. It’s a program limited, however, to rate and term refis — no cash-out refis here — and borrowers must be current on their loan. The VA has a similar program.

In contrast, the GSEs generally require a new appraisal on any refi, whether cash-out or a rate or term refinancing. It seems likely, although Lockhart did not specify details, that Fannie and Freddie are looking to follow the lead of the FHA in terms of making it easier for borrowers to refinance in certain situations.

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