Small-scale real estate investors got a pleasant surprise last week when Fannie Mae and Freddie Mac said they'd refinance potentially thousands of mortgages on rental and second homes as part of the Obama administration's massive housing relief effort.

The White House had announced last month that its refinancing effort would be for owner-occupied principal residences whose loans are either owned or have been guaranteed by Fannie or Freddie in mortgage-backed securities.

But when the two companies sent details of their upcoming programs to lenders last week, investor loans and mortgages on second homes WERE included among those eligible for refinancings.

A Freddie Mac spokesman, Brad German, explained that investors loans were included because refinancings can “help reduce renter evictions by putting landlords in a (more affordable) refi that improves their chance of success.”

That's excellent news for some investors, but it won't help out everybody.

Here's a quick overview of who's eligible and how to apply:

First, your investment property or second home loan must be owned or guaranteed by either Fannie or Freddie. Ask your loan servicer. Or you can go to websites set up by the companies to speed the process - Fannie Mae or FreddieMac.

If your mortgage is in some other institution's portfolio ... or in a private mortgage security, this program isn't for you.

Next, make a rough estimate of your current loan to value ratio on the property. If your mortgage balance does not exceed your property value by more than five percent, you're eligible.

Say you bought a rental duplex a few years back for $500,000 with a first mortgage of $400,000 at seven and a half percent that was acquired by Fannie Mae. You'd love to refinance that to today's much lower rates in the fives or sixes to increase your cash flow.

Because of local property value declines, say your duplex is now worth about the amount of your loan balance. That precludes you from refinancing from most sources, but under Fannie's special program, you'll be eligible … PROVIDED your loan balance does not exceed the property value by five percent.

There's another hoop to jump through: Your payment history on the mortgage needs to be just about flawless -- no thirty day late payments during the past 12 months -- or you won't get a refi.

Two additional, positive details to be aware of: Your credit score WON'T be a problem because Fannie and Freddie have agreed to waive their usual minimums, and you WON'T have to pay for new mortgage insurance.

Published: March 13, 2009

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Kenneth R. Harney writes an award-winning, nationally-syndicated column on housing and real estate from Washington, D.C. He is also managing director of the National Real Estate Development Center, a professional education company. He is a past member of the Federal Reserve Board's Consumer Advisory Council, a committee that by federal statute reviews all Fed actions on home mortgage, consmer credit and banking industry regulation. He served as a member of the U.S. Department of Housing and Urban Development's Working Group on Computerized Loan Origination (CLO) systems, and is a member of the Editorial Board of the Fannie Mae Foundation's journal, Housing Policy Debate. He is the author of two books on mortgage finance and real estate.