Fannie Mae issued Announcement 09-19 amending some very basic underwriting guidelines that will not only impact conventional financing; it will apply to FHA insured loans that are underwriting using Fannie Mae’s DU. You can read the entire announcement by clicking here.
Here are some of the changes:
- Credit documents will be valid for 90 days instead of the current 120 for existing construction. The age of the document is measured from the date of the document to the date the Note is signed.
- IRS Forms 4506 or 4506-T is required at application and at closing. This is due to fraud (misrepresentation of income).
- Age of appraisal is reduced from 6 months to 4 months.
- Trailing Secondary Wage Earner Income is eliminated. Now with a relocation, only the income of the spouse with actual employment may be considered. Previously, it was possible to use the relocating spouse’s income from their employment prior to the relo without having an actual job.
- Verbal Verification of Employment required within 10 days of signing the Note for employment income and within 30 days for self-employed income. (Our company has always performed a verbal VOE prior to funding).
- Stocks, bonds and mutual funds now valued at 70% instead of 100% to be used as reserves. Due to market volatility, Fannie Mae is devaluing your portfolio. This means that if you provide your mortgage originator with a stock, bond or mutual fund statement showing an ending balance of $10,000; the figure used for qualifying and on the application will be $7,000 (70% of the value). Stock options and non-vested restricted stocks are no longer eligible to use as reserves.
- Retirement accounts valued at 60% instead of 70% to be used as reserves.
Fannie Mae’s effective dates are to follow…if the loan is manually underwritten, this applies to applications dated on or after September 1, 2009. However, expect to see lenders and banks to adopt these guidelines early.
Thanks Rhonda. Looks reasonable to me. Age of appraisal when I started in the business was 60 days.
I will note that some programs are requiring that the employer note (on the VOE) if they expect the borrower’s salary to increase or decrease in the next 12 months after closing.
Nothing out of the ordinary and probably won’t impact most borrowers. However, I think it demonstrates how underwriting focuses on minutae instead of the overall context of the file. I contend that most mortgage loans could probably be underwritten 10 minutes if underwriters were actually capable of making sound credit decisions based on the facts at hand instead of being glorified clerks which is what most are these days.
Russ, our underwriters would bite and hiss at you if they read this post…but ours are REAL underwriters since we do FHA and manual u/w. 🙂
Just a little rant… it isn’t so much the underwriter’s fault as it it is the banks and wall street. Loans are underwritten so that they are salable, not because they make sense. A very hard concept to grasp. Underwriters for the most part can only check the boxes on lender guidelines and not much else these days.
Our in house underwriters would kill me… but they know it is true.
Credit only being good for 90 days is a concern if you’re working with a client who’s scores are deteriorating… it could cause some folks to delay getting preapproved early on… the very folks who probably need to start early on.
This could prove challenging for folks at the bare minimum level of reserves, since they are devaluing stocks and retirement accounts.
This could also have a bad effect on purchases that are drug out for months (short sales anyone??).
Thanks for the post.
Russ, I think it was your line (borrowed, probably), that explained that underwriting approval wasn’t about common sense, it was about connecting the dots and going down the checklist to ensure the file could be securitized ASAP.
It’s a further tightening of guidelines when borrowers need to refi and Sellers need buyers who can obtain financing.
Thanks for the info Rhonda. Although I don’t do residential mortgages (commercial only), we also continue to see tightening underwriting standards regardless of whether the mortgage is portfolio-held, sold or securitized. One of the issues I see daily from brokers, especially the ones that complain about underwriting, is that they don’t look at the documents they are submitting to underwriting. Thus, underwriting cannot “connect the dots” because the representations in the application are not supported by the documents. It’s common sense that underwriting must tighten when fraud and defaults increase.
Will, I agree. A good mortgage professionl should review all supporting documents before submitting them to underwriting to help avoid any possible delays.