Is it possible to remove a credit enhancement from a loan?

User question: I am trying to refinance our current mortgage to get a better interest rate. After applying for refinancing, we were informed that we have a credit enhancement on the loan which makes us ineligible for the HARP program. After spending a month on the phone with Freddie Mac/current mortgage holder/new refinance company I decided to contact you because no one can give me a straight answer on how to get rid of it and get our loan refinanced. Help! Freddie Mac acknowledges that it was them who put it on the loan, but can't tell me what to do to get it removed. My husband and I have excellent credit scores, never filed bankruptcy and are not behind on the mortgage, so it was a complete surprise to find out we were ineligible to refinance. I am sure we are not the only ones out there with this problem and many people will be as surprised as we were to learn there are restrictions on their mortgages they are completely unaware of. Thank you!

Answer from I had to refer your question to a credit expert to answer your question because this is not something I am skilled or knowledgeable enough in to properly answer.

He first gave the definition of a credit enhancement and then breaks it down for you.

Here is his response:

A method whereby a company attempts to improve its debt or credit worthiness. Through credit enhancement, the lender is provided with reassurance that the borrower will honor the obligation through additional collateral, insurance, or a third party guarantee. Credit enhancement reduces credit/default risk of a debt, thereby increasing the overall credit rating and lowering interest rates.

If the enhancement was enacted by Freddie Mac, they are the ONLY ones who can get it removed - not even the lender can remove that, because it's a guarantee, or insurance, that the loan will be paid as agreed. There would be nothing I could do because this is not something that reports to the bureaus, so you probably won't see any verbiage about a credit enhancement on any credit reports:

There you have it. Unfortunately it is something that only Freddie Mac can fix for you.

The likelihood is you need to find someone higher up than the people you have been talking to in order to get something done.

I am certain there are other cases similar to yours out there but don't feel it is a common situation. We are never too busy to help answer any further questions you may have. Thanks.

*Nothing here is considered to be legal or tax advice. Any and all questions regarding tax or legal issues need to be directed to an appropriate and licensed professional.

Joe Duffin
Broker for Blue Roof Realty

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