Self-employed Homeowners Catch a Break on Refinancing

 Loan Guidelines, Loan Programs, Residential Mortgage  Comments Off on Self-employed Homeowners Catch a Break on Refinancing
Jun 162010

Last year, Fannie Mae and Freddie Mac created “streamline refinance” programs to help homeowners take advantage of historically low interest rates. While the programs were available to any homeowner with a Fannie or Freddie loan, the mortgage giants were particularly interested in reducing the chances of foreclosure among homeowners impacted by the recession who were paying their mortgages on time. The programs even allowed homeowners with “underwater” mortgages (mortgage balance more than home worth) to refinance.

Fannie and Freddie recognized that as a result of the recession some borrowers might have difficulty qualifying under standard guidelines, so the programs generally ignored credit scores and required minimal documentation. In many cases, all that was required was the borrower’s latest pay stub. If homeowners were current on their mortgages, chances were good they would continue to be, especially with a lower mortgage payment.

While this was great for folks who receive a regular pay check, it didn’t work so well for many self-employed folks. The programs required that self-employed homeowners provide their latest year’s tax return to verify income. If the homeowner’s business suffered during the recession, then the homeowner might be out of luck.

Well, the self-employed have caught a break from Freddie Mac. Starting this spring, Freddie changed the guidelines for its streamline refinance program so that income verification no longer is required for self-employed borrowers. While the homeowner must state income on the loan application, the homeowner does not have to provide tax returns to verify the income. Homeowners whose business income is recovering from the recession may be a good fit.

Note that the program only applies to loans owned by Freddie Mac. In the 2006-2007 timeframe, Freddie purchased 13% of marketed mortgages. Thus, there is no guarantee that Freddie owns your mortgage. You can find out by visiting the Freddie Mac Web site ( and clicking on the “Does Freddie Mac Own Your Mortgage?” link.

Some other restrictions apply. You cannot have had a late payment on your mortgage in the last 12 months, and the original loan must have been “A-paper” (no subprime loans, but stated income loans may qualify). You cannot change the borrowers from the original mortgage except in cases of death or divorce. If you have a second lien, it must be re-subordinated to the new mortgage. If the original mortgage was for your primary residence, you cannot refinance it as a second home or investment property.