Due to the turbulence in the existing economic situation, particularly with increased unemployment, fluctuations in the stock market and the elevated attention to mortgage fraud, Fannie Mae is updating a number of guidelines concerning their existing underwriting and borrower eligibility policies.
Specifically, Fannie Mae will implement changes in the following:
• Age of Credit Documents: These documents include credit reports, employment verification, and income and asset documentation. Fannie Mae is reducing the maximum age of these documents from 120 days to 90 days for preexisting properties and from 180 days to 120 days for new construction properties.
• Construction-to-Permanent Financing (Single-Closing Transaction): This policy update will address any potential problems with a borrower’s financial situation during the construction of a home.
• Credit Card Financing: Closing costs that are payable outside of closing (POC), such as commitment fees, underwriting fees, appraisal fees and origination fees, may be charged to a borrower’s credit card.
• IRS Form 4506-T: This form is written authorization for the lender to request federal tax return copies from the IRS to fully document a borrower’s income. The new change in policy will require this form to be signed by borrowers at the time of application as well as at the time of closing.
• Home Equity Lines of Credit (HELOCs): HELOCs are now allowable with Fannie Mae’s Flexible and MyCommunityMortgage® (MCM®) products.
• HUD-1 Settlement Statements: This statement must now be signed by both the borrower and the seller, if applicable.
• Property Valuation Representation & Warranty Requirements: The length of time between a closing date and the time a loan is sold to Fannie Mae is being reduced from 6 months to 4 months. During this time, the lender must assure the property value is not less than the original value from the closing date.
• Subordinate Financing: Prepayment penalties are not permitted. However, if a lender pays the borrower’s closing costs on a second mortgage lien and the lien is paid off early, those closing costs must be repaid to the lender and it will not be considered a prepayment penalty.
• Tip Income: As long as a borrower has received tip income for the past 2 years and their employer suggests it will continue, it can be used in determining eligibility.
• Trailing Secondary Wage Earner Income: This type of income will no longer be eligible due to it being based on projected income and projected employment.
• Verbal Verification of Employment (VOE): A verbal verification of employment (VOE) must be done within 10 calendar days from the note date, and 30 days for self-employed borrowers.
• Verification of Stocks, Bonds, Mutual Funds and Retirement Accounts (Reserves): Seventy percent of the value of stocks, bonds and mutual funds may be utilized as reserves, which is reduced from 100%, while 60% of the vested value of retirement accounts may be used as reserves, which is reduced from 70%.
• 2-Unit Eligibility: Maximum LTV/CLTV/HCLTV guidelines for 2-unit properties will now be aligned with 3- and 4-unit properties.
Mortgage lenders are encouraged to execute these changes on manually underwritten files immediately. However, they are required to implement these changes with application dates on or after September 1, 2009.
To access Fannie Mae’s Announcement 09-19 in its entirety, click here.
–Robert Hyder
Earlier today Total Mortage presented a housing market update. In this weeks newsletter we address what occurred recently in the housing market. In addition to what has already occurred we shed light onto what information is being released in the future.
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