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.

Fannie Mae

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

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.

Fannie Mae

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

What’s Ahead for Mortgage Rates This Week: February 23, 2009

Traders brushed off Tuesday and Wednesday’s passage of the American Recovery and Reinvestment Act and the President’s mortgage relief plan, respectively.

It showed how unsure markets remain about the stimulus package and its probable impact on the economy.

As a result, mortgage markets worsened last week, albeit slightly. It marked the 4th week out of five in which mortgage rates rose.

However, there were a few notable new items for American homeowners and home buyers last week:

1. The signed-into-law stimulus package includes a first-time home buyer tax credit
2. Additional banks joined the “no foreclosure” movement
3. Fannie Mae re-opened guidelines so that real estate investors can own and finance 10 properties, up from 4

Taken separately, these points aren’t especially noteworthy. Together, however, they’re very important.

In reducing the number of homes for sale while, in turn, spurring demand for them, last week’s policy shifts should provide key support against falling home values nationwide. More buyers competing for fewer homes tend to make prices go up, after all.

This week, we’ll see if buyers are responding. Two housing-related data points are released.

On Wednesday, it’s January’s Existing Homes Sales report. After soaring 6-plus percent in December, economists expect another big increase. This makes sense because falling prices make homes more affordable and banks are getting more efficient with selling foreclosed properties.

Then, on Thursday, the New Home Sales report hits the wires. It’s expected to show little or no change.

As for mortgage rates, expect the same unpredictability we’ve seen since the start of the year. As Wall Street comes to terms with the various stimulus plans and the fate of our nation’s largest financial companies, money will flow in and out of securities markets with fluidity and speed and that includes mortgage-backed bonds.

Rates should carve out a wide range this week. If you’re not currently floating, consider locking in to avoid the risk of higher monthly payments.

(Image courtesy: Wall Street Journal)

Fannie Mae

It’s Semi-Official – New Conforming Mortgage Fees Go Into Effect Monday

Even though its effective date is April 1, 2009, mortgage applicants should start seeing Fannie Mae’s new fee structure from lenders beginning this Monday, January 12.

The reason why Fannie Mae’s mandatory loan fees are hitting lender pricing so far in advance is because lenders can take up to 30 days to package and sell a loan to Fannie Mae post-closing. In effect, this moves the April 1 start date to March 1.

Then, figuring that March 1 is roughly 45 days from now and that 45 days is a normal window on which to close on a home or on a refinance, the start date again pushes back, this time to January 15.

Given lenders’ typical timeframe to close, fund, and sell a loan to Fannie Mae, in other words, it’s normal that pricing reflects the fee changes two-and-a-half months in advance. Homebuyers and would-be refinancers would do well to take notice.

If you are floating a mortgage rate today — or shopping for one — consider locking it in before the close of business. Effective Monday, any number of traits in your home loan could increase your closing costs:

• Your credit score
• Your downpayment / equity percentage
• Your home’s property type
• Your reason for wanting a mortgage
• Your loan type

For a complete look at Fannie Mae’s new, mandated loan fees, visit the Fannie Mae web site. If you have trouble interpreting the worksheet, call or email me and we can talk about it together.

Fannie Mae

New Fannie Mae Loan Fees Target Condo Buyers & Others

When conforming mortgages started defaulting en masse in late-2007, mortgage guarantor Fannie Mae created a loss-offsetting, fee-generating scheme dubbed “loan-level pricing adjustments”.

The concept was basic: For mortgage applicants with high-risk profiles, collect up-front payments to offset potential long-term losses.

Similar to the auto insurance model in which younger drivers pay higher premiums, the riskier the applicant, the higher the fee.

At the inception of the program, Fannie Mae defined “risk” as a combination of borrower credit score and home equity percentage. In general, lower FICOs and higher LTVs paid more costs.

Effective April 1, however, Fannie Mae’s definition of risk is expanded. By a lot. Fannie Mae’s new loan-level fees now impact any conforming mortgage that meets any of the following criteria, with the exception of fixed rate loans of 15 years or less.

• Up to 0.75% fee: Secured by a condo/co-op with less than 25% equity
• Up to 0.50% fee: Features a junior mortgage (i.e. HELOC, HELOAN)
• Up to 1.00% fee: Features interest only payment options
• Up to 1.00% fee: Secured to a 2-unit property
• Up to 3.00% fee: Is designated as “cash out”

Each 1 percent in fees equals 1 percent of the borrowed amount. Therefore, a condo buyer with a $200,000 first mortgage and a $25,000 line of credit is subject to a mandatory 1.25% charge of $2,500, due at closing.

However, it doesn’t stop there. Fannie Mae has also adjusted its original FICO-LTV matrix so that nearly every applicant — irrespective of credit score — will face higher closing costs on their home loan.

Mortgage rates may be falling, but the cost of financing a home is rising.

Fannie Mae’s latest announcement is its fifth risk-based pricing update in the last 15 months. It’s likely it won’t be the last, either. Therefore, if you’re torn between to buy a home now or later, consider that the cost of waiting may outweigh the benefits of falling prices or falling rates.

Fannie Mae

For Real Estate Investors, Finding Good Loans Is Tougher Than Finding Good Deals

With home prices falling across most parts of the country, investors in real estate are finding good value in certain rental properties. Unfortunately, they’re also finding it harder to get approved for a home loan.

After getting stung by defaults, conforming mortgage standards for non-owner occupied home loans tightened dramatically last quarter.

One major change was the reduction in the total number of homes Fannie Mae or Freddie Mac will finance for any one borrower.

Prior to the chance, the number of financed properties could be as high as 10. Today, that number is 4, stinging investors with large real estate portfolios. Going forward, buying properties isn’t the problem; financing them with conforming mortgage money is.

Another guideline change mandates larger downpayments.

Versus early-2008, when a real estate investor could buy a home with 10 percent down, today’s investor is required to pay 15. But, as an added wrinkle, few private mortgage insurers write policies against rental homes anymore, rendering the 15 percent downpayment insufficient. The de facto requirement, therefore, is now 20 percent down.

And then came the fees.

As part of its “pay-for-risk” pricing model, Fannie Mae added mandatory fees to all of its investor property mortgages this year. Based on loan-to-value, the fees are:

• 75% LTV or less: 1.750 percent of the borrowed amount
• 75.01 – 80.00% LTV : 3.000 percent of the borrowed amount
• Greater than 80% LTV : 3.750 percent of the borrowed amount

So, if your personal plan includes the purchase of investment properties in 2009, consider the impact that tighter conforming guidelines, larger downpayments and higher fees will have on your bottom line.

All things considered, now may be a good time to make that rental property bid. Sure, prices may fall going forward, but increased acquisition costs may wipe out the long-term gains.

Fannie Mae

Happy Thanksgiving for Whom?

On Thursday, November 20th, Fannie Mae (FNM) and Freddie Mac (FRE) made a landmark announcement in regards to a temporary hiatus on foreclosure sales and evictions for a six week period beginning the day before Thanksgiving until January 9, 2009. At first read, politicians and consumer advocacy groups heralded the announcement as a win for troubled homeowners.

James Lockhart who is the director of the Federal Housing Finance Agency (FHFA) was quoted that the suspension would allow “delinquent borrowers…an opportunity to avoid foreclosure and work out terms.” It should be noted that this temporary suspension is an addition to the normal time-line required during the foreclosure process which is estimated by U.S. Department of Housing and Urban Development to be 3 – 6 months (subject to state foreclosure laws and processes).

For the homeowners on the brink of losing their home to the foreclosure process, the holidays will be a festive occasion removed from the reality of the housing crisis. This should bring a smile to their faces. FHFA, FNM & FRE look as if they are the champions to the financially strapped homeowners when they have been greatly criticized for the lack of proactive response to the housing debacle. The attorneys, law enforcement agencies and the judicial system who facilitate the foreclosure process also receive a reprieve from the gluttony of evicted homeowners during the holiday season.

To all of those mentioned, Happy Thanksgiving & Holiday Season!

For those on the other side of the foreclosure process, it is going to be an extended holiday stretch of dwindling business not of our own will. The professionals that will be negatively impacted from this action will be Realtors, appraisers, home inspectors, title companies, escrow companies, mortgage companies, insurance agents & real estate attorneys. This will be extremely hard on states in which stability of the housing market has been on the back side of foreclosure sales such as California, Florida, Nevada & Arizona.

No matter where you look, foreclosures have become a norm of the real estate landscape. The unilateral moratorium will only delay the inevitable flood of foreclosed homes to hit the market. It has taken the real estate industry more than 18 months to adapt to the new reality of the housing market.

Life is not like a video game. We can not press pause and wait for a better opportunity. In the eyes of this Certified Mortgage Planner, we must continuously move forward…good or bad. That’s Life! Happy Thanksgiving.

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