Monday, March 16
Posted 4 p.m. EDT
AT ODDS: Homeowners whose loans are owned by "Frandie" will be able to refinance their mortgages, in some cases, beginning next month. Fannie Mae and Freddie Mac are handling the refi program in substantially different ways, even though they serve the same master.

Fannie and Freddie are in government conservatorship because they went broke. They report to the Federal Home Financing Agency, or FHFA. Folks at Frandie pronounce the name of the agency "Fuhfa."

Under the Obama administration's Making Home Affordable refinance program, homeowners will be able to refinance their Fannie- or Freddie-owned home loans even if the primary mortgage balance is a smidgen more than the house is worth. They can refi the mortgage for a max of 105 percent of the home's value.

Right now, I'm not going to address the issue of how many homeowners will qualify for help under this refi program. It will help a few, because a lot of people owe what their house is worth (or close to it), and can't refi because of the high loan-to-value ratio. The Making Home Affordable refi initiative will help these folks get lower house payments. People whose loans are deeply underwater won't get refi help.

I want to discuss something else. Even though Fannie and Freddie are controlled by the same agency and have the same goals, they're pursuing the refi program in their own ways. Homeowners aren't going to be happy. Fannie offers many choices, but high fees; Freddie offers no choices and low fees.

Fannie Mae will let homeowners refi with a broad choice of lenders. Let's say you send your monthly house payments to Bank of America and the loan is owned by Fannie Mae. You'll be able to refinance with B of A if you want, or another lender that has a relationship with Fannie Mae. But you'll be socked with high fees. Many refinancers will find themselves paying 2 percent or more of their new loan balance in what Fannie calls "loan level price adjustments." That's on top of the customary fees that the lender will charge.

Freddie Mac will require homeowners to refi with their current lender. Let's say you send your monthly payments to Wells Fargo, and the loan is owned by Freddie Mac. Under the Making Home Affordable program, you will have to refinance with your current servicer -- in this hypothetical case, Wells Fargo. You won't be allowed to refi with someone else under the program's auspices. But Freddie will charge a quarter-point fee and nothing more. In additon, the lender will assess its customary fees.

The short way of saying it: Fannie gives you lots of lender choices, but high fees. Freddie doesn't give you a choice of lenders, but charges one low fee.

Fannie and Freddie are telling homeowners to call their loan servicers to ask if their loans are owned by Fannie or Freddie. Evidently, the servicers are pushing back, asking why Fannie and Freddie won't answer those questions themselves. Fannie says it will have a system in place a week from now, in which you'll be able to access a Fannie Web page, enter your address, and find out if you have a Fannie-owned loan. God help you, though, if you type your address as "Raintree Trail" when Fannie has it listed as "Raintree Trl" or "Rain Tree Trail."

One other thing, and I'll amplify this later: Fannie and Freddie prohibit your lender from proactively reaching out to you with an offer of a refinance under the Making Home Affordable program. In other words, your lender can't comb through its database, identify yours as a Fannie-owned loan with a loan-to-value of 95 percent, and send a letter offering to refinance the loan at a lower rate under the Making Home Affordable program.

So if you're wondering why your lender doesn't just get out in front of the problem, and offer you a refi pre-emptively, that's why. Making such an offer is against Fannie's and Freddie's rules unless you contact the lender first. This is just another example of your government protecting investors at the expense of homeowners, taxpayers and consumers.