Monday, November 3, 2008

Fannie Mae guideline changes coming

FNMA announced guideline changes on October 16, 2008, effective December 13, 2008.

The changes:

1.) High Cost Area Loan Limits - Phase out of Jumbo Conforming and implementation of Permanent High Cost Area Limits. The general loan limits will continue to be used, although it is unclear if the limits will change. In the past, FNMA increased the limits as home prices rose. But even now that we have seen a 25% decline in the national average home price since peak in 2006, I doubt FNMA will reduce the limits. In fact, some industry groups (including the Mortgage Bankers Association) are pushing FNMA to lift the limits altogether.

Permanent High Cost Area Limits will be a loan feature (add on charge to conforming limit product) instead of a separate product like the Jumbo Conforming. The 2009 High Cost Limits will be announced by the FHFA, expected November 7. Jumbo Conforming will be phased out on December 31, 2008.

2008 Limits:

2.) Bankruptcy policy change - extended the minimum allowable time period between a bankruptcy file date and the date of the credit report from 24mo. to 48mo. The bankruptcy still must be satisfied prior to the date of application.

3.) LTV Eligibility Requirements - new LTV limits for specific transaction types. Most notable:
Primary Residence
** Cashout Refi --> from 90 to 85%
2nd Home
** Purchase/rate & term refi --> from 95 to 90%
** Construction --> from 95 to 90%
** Cashout refi --> from 90 to 75%
** Purchase --> from 90 to 85%
** Construction --> from 90 to 85%
** Rate & term refi --> from 90 to 75%
** Cashout refi --> from 85 to 75%

Here is the fully updated Eligibility Matrix.

4.) Mortgage loans with interest only feature - interest only period must be for 10 or more years.

5.) Income & Employment Documentation Requirements
  • Salary/Bonus/Overtime: The minimum documentation level required will be one current paystub and a verbal verification of employment.
  • Commission/Self Employment: The minimum documentation level required will be one year’s personal federal income tax return.
6.) Miscellaneous
  • Verification of rental income (crackdown on "buy & bail")- "If the property was formerly a primary residence, a fully executed lease agreement, receipt of a security deposit, and documented equity in the property of at least 30 percent must be provided.
  • Disputed credit report tradelines - lenders must confirm accuracy of disputed tradelines.
  • Borrowers without traditional credit (no credit scores) - ineligible for interest only loans

FNMA requirements effective January 1, 2009:
Homebuyer education for first time home buyers (FTHB) on all MyCommunity Mortgage loans and all borrowers relying on non-traditional credit to qualify.

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