Fannie Tightens Underwriting for Certain Types of Mortgages
On April 30, 2010, Fannie Mae released Announcement SEL-2010-06 to tighten underwriting for certain types of mortgages. To further limit payment shock for a borrower with an adjustable rate mortgage (ARM) that adjusts during the first five years of the loan, borrowers must be qualified at the higher of the note rate plus 2%, or the fully indexed rate. Interest-only mortgages are being restricted so they remain as a financial management tool, but are not available to make a mortgage affordable. Interest-only mortgages will no longer be available for cash-out refinances, Flexible mortgages, MyCommunityMortgage® loans, investment properties, or two- to four-unit properties. The minimum credit score for an interest-only mortgage is now 720, and the borrower must have reserves covering at least two years. In addition, the seven-year balloon mortgage will no longer be a standard Fannie Mae product.

Announcement SEL-2010-06 >

Contacts: Jeff Lischer, 202-383-1117

Contacts: Tony Hutchinson, 202-383-1120

 
Fannie Mae Changes Rules for Borrowers with a Prior Short Sale or Deed-in-Lieu of Foreclosure
On April 14, 2010, Fannie Mae released Announcement SEL-2010-05 revising its rules regarding the eligibility of a borrower to obtain a new mortgage after a preforeclosure event (a short sale (also known as a preforeclosure sale) or a deed-in-lieu of foreclosure). Fannie Mae has changed the waiting period for these borrowers, and added variations depending on the loan-to-value ratio (LTV) and whether there are extenuating circumstances. For a consumer with a prior short sale or a deed-in-lieu of foreclosure without an extenuating circumstance, the new waiting periods are 2 years with a 80% maximum LTV, 4 years with a 90% maximum LTV, and 7 years otherwise. If there are extenuating circumstances, the new waiting period is 2 years with a 90% maximum LTV ratio. Fannie is also tightening the requirements for re-establishing credit. In addition to the waiting periods, the loan must meet delegated underwriting and minimum credit score requirements, and the borrower must have traditional credit. Nontraditional credit or “thin files” are not acceptable.

Announcement SEL-2010-05 >

Contacts: Jeff Lischer, 202-383-1117

Contacts: Tony Hutchinson, 202-383-1120