Get Preapproved before Memorial Day Weekend: More Changes with Fannie Mae

Fannie Mae will be releasing a new guidelines for their AUS over the Memorial Day weekend of May 31, 2008: Version 7.0.    Loans submitted prior to Memorial Day with an approval via Fannie Mae’s Version 5.7 will be honored.   Fannie Mae is saying that there will be more Expanded Approvals (higher rates) than what we have experienced.   I’m not saying that’s good or bad…just that if you’re considering a mortgage, getting approved before the Memorial Day weekend could be to your advantage.  Here are just some of the changes:

Loan to values greater than 85%.  Private mortgage insurance is no longer considered a “mitigating” factor for higher loan to values.   The more equity in the property, the more Fannie Mae smiles upon you (this is a not a change, the pmi factor is).

“Authorized Users” on credit cards will no longer be considered.   It was not uncommon for parents to add their child to their credit accounts as an “authorized user”.   This may have been done so that the child could have credit available in the event of an emergency (picture a college student away from home).   Once people figured out that the timely payments made by the parent (or credit payer) was benefiting the “authorized user”, it didn’t take long for some people to actually sell their credit history on that account by allowing strangers to become “authorized users”.   

Debt to income ratios tighter.  “In general, the updates to the maximum allowable total expense ration in DU (Desktop Underwriter aka Fannie Mae) Version 7.0 will be more conservative…”  

Loan Type/Level of Risk.   With Version 7.0, Fannie Mae is associating levels of risk with varios products (from lowest to highest):

  • Fully amortized fixed rate mortgages
  • Fully amortized 5, 7 and 10 year ARMs
  • 6 month, 1 and 3 year ARMs and Fixed Rate Interest Only Mortgages
  • Interest Only ARMs and balloon mortgages

Version 5.7 viewed fully amortized fixed rate, fixed period (3-10 year) ARMs as having the least amount of risk with balloon and interest only mortgages having moderate additional risk.   Negative amortized mortgages were considered the riskiest…now they’re off the charts.

Condos are now considered a higher risk than single family detached.  Version 7.0 views one-unit properties that are not “attached condominiums” as less risk than attached condominiums and two-unit properties.  Three- and four-unit properties have a higher level of risk associated than condo and duplex properties. 

Bankruptcy, mortgage delinquencies and foreclosures.   A bankruptcy needs to be fully discharged and 24 months since the date filed.

If a borrowers credit report shows a mortgage that was reported 60 or more days delinquent in the last 6 months, they will receive a “refer”.  

If the borrower has had a foreclosure reported within the last 5 years, they will also receive a “refer”.    If the date of the foreclosure cannot be determined, if the foreclosure was filed within the last five years and has not been satisfied, the loan will be declined.

Self-employed borrowers will no longer be considered “an additional layer of risk”!   Hey…I have to end this on a positive note!  🙂

Expanded Approval is being pumped up.   Fannie Mae is anticipating more EA approvals.  An EA approval means that the borrower’s scenario is “less than perfect” or some prefer to say “A Minus”.  There are different levels of EA approvals (such as EA-1, EA-2, etc.).   Expanded approval also come with higher rates than a typical conventional mortgage as it’s risk based pricing. 

As Jillayne stated, guidelines will continue to tighten for a while with Fannie/Freddie and the private mortgage companies.  This is again, another reason for people, professionals and consumers alike, to learn all they can about FHA which may be an option to consider over an Expanded Approval and tougher underwriting standards with conventional mortgages. 

This entry was posted in General, Mortgage/Lending by Rhonda Porter. Bookmark the permalink.

About Rhonda Porter

Rhonda Porter is an NMLS Licensed Mortgage Originator MLO121324 for homes located in Washington state. Her blog, The Mortgage Porter, is nationally recognized for sharing relevant information to consumers about mortgages. She has been originating mortgages since 2000 at Mortgage Master Service Corporation #40445 Consumer NMLS Website: NMLS ID 40445. Equal Housing Opportunity. You can follow Rhonda on @mortgageporter, Facebook and/or Google+

22 thoughts on “Get Preapproved before Memorial Day Weekend: More Changes with Fannie Mae

  1. Deborah, it was common to have parents add kids or spouses add each other as an authorized user in order to give the other party the benefit of the established credit. This isn’t going to fly w/Fannie any more… the practice of consumers selling their established credit to strangers of being “authorized users” is also no longer allowed. I’ve heard that this happened, it was not something that I did nor that I witnessed.

    Check out what Experian says…I just googled “authorized user”…I can’t believe it!

  2. That is scary to think about that kind of manipulation, both from a lender POV (unearned higher credit score) and an “authorized users” getting financially abused. Good that it’s no longer being considered!

  3. Thanks for the second link Rhonda, there was a lot of good information there.

    The numbers of people who are using “authorized users” is HUGE according to the article, 30% (60 to 75 million). Of course those numbers are not the same as those who were using unearned higher credit scores to get loans, that is just the gross number of consumers who are using some form of “authorized users” but still….

  4. Question for the professionals here:

    I was pre-approved via DU 5.7 as “Approve/Eligible” on May, 15th 2008. However, it doesn’t look like I would be able to get approved under DU 7.0 because of the new FICO score requirements.

    Question: Will Fannie Mae purchase my loan after June 1st if the “Approve/Eligible” came back in DU 5.7 as opposed to DU 7.0? I’m scheduled to close on my home on June 9th and I’m looking for reassurance that my loan will first go through underwriting…..then Fannie Mae.

    Please help!!!


  5. Greg and JD, it’s my understanding that if the loan has received a Fannie Mae Approval/Eligible under Version 5.7 by this Friday, it will be honored by Fannie Mae as 5.7.

    Please verify with your lender/underwriter.

  6. “Self-employed borrowers will no longer be considered “an additional layer of risk.”

    That’s nice to hear. I have a VA loan to use myself, but it’s always struck me as odd that being self-employed is considered a risk to banks. If you’ve got the two years tax returns to show a reliable income, then what’s the big deal? If anything, a self-employed person is less likely to suddenly be broke, because most of us have a wide variety of clients rather than one employer who controls our salary.

  7. Lindsay, if a self employed borrower could provide two years tax returns showing a reliable-steady income, then there was no big deal. S/E borrowers have required more documentation and need to show that their income is stable or increasing.

  8. Fannie Mae’s upgrade (as well as changes w/MGIC) will actually take place this weekend: May 31, 2008.

    If you took my advice and became preapproved prior to last weekend–you’re ahead of the game. 😉

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