Fannie Mae Changes……Good….or Bad….it is now reality
On June 1st Fannie Mae made changes to the way its automated underwriting engine evaluates applicants for mortgages. Details follow:
• As of June 1 Fannie Mae “upgraded” their underwriting engine to version 7.0. This new version has some major changes including: 1) Loan to values of 85% or greater will no longer use PMI (Private Mortgage Insurance) as a mitigating factor 2) Authorized users-Many times people have “authorized user accounts” on their credit reports in order to help build their credit profile and increase their scores thereby getting better terms or even the differentiating factor in getting approved-these accounts are NOW IGNORED by the new software version 3) Debt to Income ratios have been made more conservative 4) Condos are now considered a higher risk then single family homes 5) Foreclosure-If a borrower had a foreclosure in the past the time frame for the ability to get a conventional approval was 4 years since foreclosure it is now 5 years 6) Adjustable rates mortgages and balloon mortgages are now considered higher risk 7)SELF EMPLOYED borrowers are no longer considered an additional layer of risk-this is GREAT! 8)Fannie now restricts borrowers to owning four financed properties (this includes primary and secondary residence)-down from ten properties
Long story short anyone that was “pre-approved” or run through the old system will have their findings honored by most banks (talk to your mortgage broker or banker for confirmation that this is the case in your particular situation) for a period of 120 days since the initial run-each bank has its own rules and you cannot transfer findings from one place to another, therefore if you have been run through the system prior to June 1 NOW is the time to get motivated and make your move (especially if you are in a marginal approval situation).
• Declining Markets Policy-Fannie Mae & Freddie Mac have updated their respective systems to no longer declare an area or address to be a declining market. They are leaving it to the appraisers, pmi companies and banks to determine what and where a declining market is
• FHA-has enumerated what is considered acceptable (it used to be underwriter discretion)for alternative credit (for those lacking a traditional credit report i.e. credit cards, etc)-some of these changes include that when we are verifying the rent on someone lacking a traditional credit record we must have 12 months of cancelled rent checks if the landlord is an individual. This is just one of many changes made to this section of their guidelines.
As the mortgage world evolves make sure that when using a mortgage broker they are an FHA approved Correspondent. Why? As an FHA approved correspondent they are able to actually work with the underwriter and place a loan with a direct lender. Many mortgage brokers are using a “scheme”-my words-of being a “consultant”. A consultant can not originate FHA mortgages, has to collect their “consulting fee” from the borrower and they are limited to the lender they can bring the loan to which generally increases the costs to your buyer! As an example there are only 5 mortgage broker offices in Broome County (where I am based out of) that are FHA approved . To see if your mortgage broker is an approved correspondent check this site: http://www.hud.gov/ll/code/llslcrit.cfm just enter the state and county of the office location. You can also search by company name.
THE SKY IS NOT FALLING! There are still many attractive loan products and some options for 100% financing out there. Credit and the positive management of it are more important than ever. The mortgage world is changing and I will keep you informed of these changes as they occur. Have a great day! Jacques
Tags: Fannie Mae, Mortgage