Fannie Mae

Fannie Mae Gets Tough(er) On Borrowers. Again.

Fannie Mae raised the bar for mortgage applicants this past weekend.  Getting approved for a home loan just got harder.

In its official announcement, Fannie Mae says the updates minimize long-term lending risks.  If that’s the case, this won’t be the last guideline change Fannie Mae makes – especially with loans defaulting at an above-normal clip.

The immediate changes are major. The first pertains to credit scores.

Effective December 13, 2009, the bulk of Fannie Mae’s loans require a 620 credit score minimum.  There are very few exceptions.

A second relates to loans with private mortgage insurance. 

Homeowners whose loan-to-value exceeds 80 percent now have a choice:

1. Pay higher mortgage insurance premiums month-after-month
2. Pay a one-time fee paid at closing to compensate for higher risk

Both options result in higher consumer loan costs.

A third change concerns maximum debt-to-income ratio. Fannie Mae will no longer approve loans with debt ratios exceeding 45 percent except with very strong assets and very high credit scores. 

In no case whatsoever may debt-to-income exceed 50 percent.

There are other changes, too, including the elimination of seldom-used mortgage products and additional risk-based fees for “expanded level” mortgage approvals.  These updates affect just a small part of the population.

So, home prices are rebounding, mortgage rates are low, and – for 5 more months at least – there’s a federal tax credit for qualified buyers.  You don’t have to buy a home now, but with mortgage guidelines sure to tighten in 2010, now may be a better time than later.

The best “deal” won’t matter if you can’t get qualified on your mortgage.

Need more expert advice? Ask the team of Certified Mortgage Planning Specialists at Benchmark Mortgage.

No Changes Set Forth for 2010 Conforming Loan Limits

A conforming mortgage is one that, quite literally, conforms to the mortgage guidelines set forth by Fannie Mae or Freddie Mac.

Each year, the government sets the maximum allowable loan size for a conforming mortgage, based on “typical” housing costs nationwide. 

Loans in excess of this amount are typically called “jumbo”.

While home prices increased from 1980 to 2006, so did conforming loan limits.  Since then, however, as home prices have dipped, the conforming loan limit has held.

Now, in 2010, for the 5th consecutive year, the government set $417,000 as the nation’s conforming mortgage loan limit.

The 2010 conforming loan limits, as released by the government, are:

But conforming loan limits don’t apply to all U.S. geographies equally.  As a result of various economic stimuli since 2008, the government now considers certain regions around the country ”high-cost” areas.  In these areas, conforming loan limits can range to $729,750.

There are less than 200 such areas nationwide.  The complete list is published on the Fannie Mae website.

Need more expert advice? Ask the team of Certified Mortgage Planning Specialists at Benchmark Mortgage.

Fannie Mae Passes New, Tougher Mortgage Guidelines

Getting approved for a mortgage is about to get harder. 

For the second time in less than 3 months, Fannie Mae announced changes to its mortgage guidelines. 

In its official announcement, Fannie Mae details the updates, meant to reduce the mortgage firm’s overall risk.

The first major change is with respect to credit scoring.  All Fannie Mae loans — whether underwritten electronically or manually — require a 620 credit score minimum.  There are very few exceptions.

A second change relates to loans with private mortgage insurance.  Homeowners whose loan-to-value exceeds 80 percent now have a choice:

1. Accept higher mortgage insurance premiums month-after-month
2. Accept a one-time fee paid at closing to compensate for higher risk

Both options pass higher costs to consumers.

Then, a third change relates to maximum debt-to-income ratio.  As announced in a separate document, Fannie Mae will no longer approve expense ratios exceeding 45 percent except with very strong assets and credit to back it up.  In no case can expense ratios exceed 50 percent.

There are other changes, too, including the elimination of seldom-used mortgage products and new risk-based pricing on “expanded level” approvals.

Fannie Mae implements its updates during the weekend of December 12. 

Therefore, if you’re going to need (or want) a new mortgage later this year, consider moving up your timeframe to October or November.  Once the guidelines change, getting approved for a mortgage is going to be tougher.

Need more expert advice? Ask the team of Certified Mortgage Planning Specialists at Benchmark Mortgage.

Home Buyers Need to Qualify Again on Sept 1st

As a reminder, Fannie Mae is rolling out new lending guidelines Tuesday, September 1, 2009. 

Starting next week, being approved for a home loan could be much more difficult.

The new rules mark the first major underwriting update since April of this year.  The changes are mostly geared at fraud prevention.

Among the updates:

1. Stock options are no longer eligible for “reserves”
2. Relocating families can’t use the “trailing” spouse’s projected income
3. “Tip” income must be documented and verified
4. Lenders must call employers to verify employment
5. Lenders must verify tax transcripts against IRS records

But there are other changes, too.  As examples:

1. Owners and buyers of 2-unit homes are subject to new minimum FICOs with larger downpayment and equity requirements
2. Only 70% of stock, bond and mutual values may be used as reserves
3. Only 60% of retirement assets may be used as reserves

Consider this post to be your advance warning. Not everyone that qualifies for a mortgage on Monday, August 31 will qualify on Tuesday, September 1. 

Therefore, if you have a pending need for a mortgage — for either a purchase or a refinance — it’s probably best to talk with a lender as soon as possible.  The deadline is based on the date of application — not the date of closing.

Read the complete Fannie Mae announcement online.

Fannie Mae Restricts 2-Unit Borrowing

For the first time in nearly six months, Fannie Mae is imposing strict, new guidelines on American homeowners. 

This time, the hardest hit demographic is owners of 2-unit homes.

In its official announcement, Fannie Mae listed the following changes to its 2-unit financing programs, separated by occupancy type.

Primary Residence

• Purchase: Maximum loan-to-value drops to 80%; FICO minimums reset to 640.
• Rate-and-Term Refinance: Maximum loan-to-value drops to 80%; FICO minimums reset to 640.
• Cash Out Refinance: Maximum loan-to-value drops to 75%; FICO minimums reset to 680.

Investment Property 

• Purchase: Maximum loan-to-value drops to 75%; FICO minimums reset to 660.
• Rate-and-Term Refinance: Maximum loan-to-value drops to 75%; FICO minimums reset to 660.
• Cash Out Refinance: Maximum loan-to-value drops to 70%; FICO minimums reset to 680.

With Fannie Mae’s new loan-to-value limits falling by as much as 15 percent, it’s a certainty that fewer 2-unit homeowners will be approved in the mortgage process.  This could slow both purchase and refinance activity in the coming months.

The good news, though, is that while Fannie Mae recommends that lenders institute the new policy immediately, September 1, 2009, is the “effective date”.

Therefore, if you plan to buy a 2-unit home, or if you own one and know you’ll need to refinance it soon, it may be a good idea to move up your timeframe. 

Lenders could implement the new guidelines at any time and usually do so without warning.

How Improving Home Values May Lead To Easier Mortgage Approvals

If falling home values is what prompted Fannie Mae and Freddie Mac to tighten mortgage guidelines in 2007 and 2008, America’s mortgage applicants may get their long-awaiting loosening within the next 18 months.

According to a government report, the values of homes financed with conforming mortgages rose for the third straight month in February.

This is an important piece of data because as values rise on the homes against which conforming mortgages are made, Fannie Mae and Freddie Mac’s respective loan portfolios get less risky.

With less risk related to home values, there’s an opening for the agencies to assume more risk on individual borrowers.

A guideline loosening would help home loan applicants that currently find themselves ineligible for conforming mortgage financing — often the least costly source for mortgage money.

Pressed for profitability, it’s unlikely that Fannie Mae or Freddie Mac will loosen their respective guidelines prior to 2010, but if the Home Price Index continues to show improvement, it’s good news for the agencies which, in turn, is good news for people in want of a home loan.

HPI shows February 2009 home values on par with the values of April 2005.