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.
This morning I’ve been trying to update articles I’ve written on FHA in an attempt to have the information be accurate during this day and age of the ever-changing-loan-guidelines. Please don’t rely 100% on information you find about mortgages on the web. Programs and products are simply changing too often to keep up and information is becoming quickly outdated.
This month, FHA loans have seen a few changes, many with the passage of HR 3221. Let’s see if I can get us all caught up in one post. 🙂
Effective for FHA case numbers issued October 1, 2008 and later:
- FHA mortgage insurance increase. First FHA mortgage insurance was going to have risked based pricing, then HR 3221 came along and put a moratorium in effect until September 30, 2009. Until then, for a FHA purchase 30 year fixed mortgage, upfront mortgage insurance has increased to 1.75% and monthly mortgage insurance is 0.55% for loan amounts over 95% LTV and 0.50% for borrowers putting more than 5% down on their home.
- Down payment assistance programs. Seller funded down payment assistance programs are currently not allowed. However there is a bill in Congress (HR 6694) that if passed, would allow DPAs once again but only to borrowers within certain credit scores. Home Buyers can still obtain a gift or loan from family members as long as it meets underwriting guidelines.
- Rental income credit when buying a new home and renting the existing residence. This actually became effective in mid September. When converting a primary residence to a rental home, the rental income can only be used for qualifying if:(1) the borrower is relocating or (2) the new rental meets at least 25% equity (to be determined by an appraisal < 6 months old or the existing mortgage balance is 75% of the original sales price). Both mortgage payments are factored for qualifying purposes. HUD (and Fannie/Freddie) have cracked down on this due to home buyers purchasing a new (less expensive) home and “walking away” from their McMansion mortgage payment.
Effective January 1, 2009:
- Minimum down payment increases to 3.5%. Home Buyers have until the end of the year to purchase under the 3% down payment requirement. Sellers can pay actual closing costs once the buyer meets the minimum down payment requirement (which can be gifted or loaned by a family member).
- FHA Jumbo loan limits to change. HUD is in the process of reevaluating median home prices and will announce new loan limits before the end of the year. With the passage of HR 3221, the maximum loan amount for FHA Jumbo was reduced to 115% of the median home price (currently, the $567,500 limit is based on 125% of the median home price). Should HUD determine that our home values are unchanged, then the new limit would be reduced to around $522,100. However, many areas have not had their values reevaluated by HUD in many years…so for now, we really don’t know what the new “FHA jumbo” loan limit will be.
A few more reminders about FHA insured mortgages…
- Not all lenders are approved to originate FHA loans. Check HUDs site to verifyif the mortgage company you work for is approved. One clue I’ve noticed by LO’s who are trying to “fake it” is that they’re charging more than a 1% origination fee. This is not allowed.
- FHA does not have income limitations or geographic requirements.
- FHA is not limited to first time home buyers.
- FHA is not just for lower credit scores.
Sellers, you are reducing your exposure to more buyers if you are not considering those approved with FHA financing…especially with the higher loan limits. A $700,000 sales price with 20% down is pretty close to the current limit. Anything shy of 20% down would probably lean towards FHA jumbo.
Want more reasons to consider FHA financing? Here’s how conventional compares:
- Tighter guidelines. And if you think DU 7.0’s been tough…wait until you get a load of version 7.1 which goes into effect in mid-December.
- Risk based pricing on credit scores below 740. (FHA has risk based pricing starting at 620 and below).
- More expensive private mortgage insurance for loans over 80% loan to value.
It’s easy to see why FHA has become very popular…you could say FHA is the “It Girl” of Mortgage.