Fannie Mae has recently announced changes to their underwriting guidelines. These changes are effect with new loan submissions to Desktop Originator® (DO®)/Desktop Underwriter® (DU®) Version 8.0 on or after December 12, 2009.
The changes include:
- The DU documentation expiration will be updated to reflect a credit report expiration of 90 days from the date of the credit report for purchase and refinance transactions, and 120 days from the date of the credit report for new construction and construction-to-permanent transactions.
- An update to the maximum allowable total expense (debt-to-income) ratio to 45% with flexibilities up to 50% for certain loan casefiles with strong compensating factors
- An update to the DU credit risk assessment
- Minimum 620 credit score (not applicable to DU Refi Plus loan casefiles)
- When retirement funds are entered on the application, only 60% of the value of the account should may be used for reserves. If the funds will be used for the down payment or for closing costs, receipt of the funds realized from the sale or liquidation of the assets must be verified.
- A minimum of 2 months' reserves for all second home transactions and 6 months' reserves for all investment property transactions will be required
- Retirement of Expanded Approval®(EA) EA-II and EA-III recommendations (except for DU Refi Plus loan casefiles) - EA-I remains as the only Expanded Approval level
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Trailing secondary wage earner's anticipated income is no longer allowed to be used in qualifying
On this date, Fannie Mae also retires its HomeStyle® Construction-to-Permanent loan program. Most lenders have discontinued the Fannie Mae HomeStyle® Renovation mortgage as well, but the FHA 203K remains a very viable means to purchase and renovate a property all in one loan.
Foreclosure/Deed-in-Lieu of Foreclosure
There are also some updates regarding foreclosures and deed-in-lieu of foreclosures. For borrowers with a foreclosure completion date of more than 5 years, but within 7 years from the credit report date:
- The purchase of a principal residence will be permitted with a minimum down payment of 10 percent and minimum representative credit score of 680.
- The purchase of a second home or investment property will not be permitted.
- Cash-out refinances will not be permitted for any occupancy type.
Principal residence, purchase transactions submitted to DU with an LTV or CLTV greater than 90% where a borrower has had a deed-in-lieu of foreclosure action that was completed more than 4 years, but within 7 years from the credit report date will receive an Ineligible recommendation.
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