Fannie Mae’s recent release of their underwriting platform, Desktop Underwriting (DU), includes a few changes to the Conforming loans guidelines that could effect a homebuyer’s ability to obtain a loan. Homes.com has highlighted a few of Fannie Mae’s recent changes.
Underwriters Now Responsible for Loan Approval Following Foreclosures
With the most recent changes, Fannie Mae has left the decision to underwriters to determine whether the borrower meets the Fannie Mae guidelines for obtaining a mortgage after a foreclosure. Prior to these changes, the DU would immediately decline a loan application if the credit bureaus reported a foreclosure or a pre-foreclosure within 7 years of the application being submitted. Unfortunately, many of these supposed foreclosures were actually a short-sale or a deed-in-lieu and could be proved with proper documentation by the homeowners. This kept many qualified applicants from being approved, so to avoid this situation underwriters can now review documents provided by the borrowers to establish eligibility.
40 Year and Interest Only Loans Are No Longer an Option
No longer will potential homeowners have access to 40 year loans, as Fannie Mae has retired loans with amortization terms exceeding 360 months (30 years). Fannie Mae has also decided to discontinue interest only loans, both of these programs were risky based on their portfolio evaluations. They hope that this decision will encourage homeowners to pay both principal and interest and keep the maximum loan term to 30 years. If you have clients that were looking into obtaining one of these loan opportunities, it would be wise to inform them of the change and offer alternatives that will work with their finances.
Updated Qualifying Rate on ARM’s
Prior to the most recent changes, borrowers could only qualify at the stated note rate. With the updated edition, the DU qualifies 7/1 and 10/1 Fannie Mae ARMs at the fully indexed or note rate. What does this mean for homebuyers? If and when index rates rise in the future, borrowers may qualify for a lower loan amount on the newer programs.
Maximum TV/CLTV on all Fannie Mae Loans reduced
The maximum TV/CLTV on all Fannie Mae loans has been reduced to 95% and My Community Mortgage which previously offered 3% down payment for conforming loans, is no longer available. On the a lighter note, the FHA will continue providing loans that offer a 3.5% down payment and the DU will continue to allow CLTV rations of 105% when the financing is a Community Seconds mortgage. This may restrict the opportunities for your clients that need this assistance, be sure that their purchase of a home is not contingent on receiving one of these discontinued loan options.* Provide your clients with the Homes.com mortgage calculator to help them decide on a financial strategy that works best for them.
New Documentation Requirements
Borrowers must now submit bank statements covering a two-month span to show depository accounts on any standard loan. Prior to these changes, borrowers were only required to submit a one month period statement. With that said, one month documentation will still only be required for borrowers of DU Refi Plus loans (HARP loans).
Check out Homes.com contributor Shashank Shekhar for even more mortgage related articles like this. Share the Homes.com Local Market Reports and home buying guide to keep your clients up to date on everything going on in the real estate industry and to help them plan for the purchase of their first home.