Fannie Mae Increases Down Payments on MyCommunity® and Standard Loans

Industry Observer with No Longer Processing Mortgages. MLO #293441 expired

Charles Bailey has brought up something that Fannie Mae will be changing in mid November.  That means, if you can get people into this program sooner than then, you can save them some downpayment costs.

Original content by Charles Dailey NMLS 79048

In another backward-thinking move, Fannie Mae has very subtly announced that they will be increasing their down payment requirements by decreasing their maximum iwsLoan to Value Ratios for MyCommunity® mortgages and for standard mortgages on 1-unit primary residences effective on or after the weekend of November 16, 2013. The previous allowed down payments were at 3% based on a Loan to Value Ratio (LTV) of 97%.

The difference between 95% LTV and 97% LTV financing may sound slight but on a macroeconomic level, it’s huge. It will postpone purchases for multitudes of buyers; particularly first time homebuyers who might find themselves in situations where they have to save longer before they get into the game of homeownership.

Perhaps more profound will be the unforeseen effect of limiting choices on mortgage insurance. For many if not most buyers, borrower paid monthly mortgage insurance on a conventional loan is the worst choice. Often the best choice is Single Premium Financed PMI but even Split Premium or Lender Paid PMI are usually better choices than standard monthly PMI. If these choices seem eye crossing, click here for a PMI comparison and click here for a method of calculating and comparing PMI and you’ll see what I mean. This change by Fannie Mae will effectively make it more difficult for the consumer to take advantage of what has likely come to be the most advantageous form of PMI. This is a serious unintended consequence and could have been avoided by limiting the LTV to 95 and the HCLTV to 97%. A little forethought could have avoided this travesty.

To me, this is as backward looking as Fannie Mae’s recent guideline change regarding condos. Yes the default rates were high in 2012 on condos but those defaults were on legacy loans not the new ones. The time to tighten condo guidelines was in 2008 and not 2012. This is no different. The time to require higher down payments was 4 years ago. This last thing we need right now.

Sorry for the bad news. Don’t shoot the messenger.

Here’s an expert from the Fannie Mae Release Notes:

LTV/CLTV/HCLTV Ratio Cap Lowered to 95%

DU Version 9.1 will reflect lower maximum LTV/CLTV/HCLTV ratios for standard and MyCommunityMortgage® (MCM®) fixed-rate transactions secured by a 1-unit primary residence. Those transactions will be subject to a maximum LTV/CLTV/HCLTV ratio of 95% (instead of 97%). DU will continue to allow CLTV ratios of 105% when the subordinate financing is a Community Seconds® mortgage.

Note: HFA loans submitted to DU are subject to separate LTV/CLTV ratios. For specific HFA guidelines, lenders should contact their state Housing Finance Agency (HFA), and mortgage brokers should contact their DO sponsoring wholesale lender. As a reminder, lenders must have approval to deliver HFA loans to Fannie Mae.

Charles Dailey - Branch Manager, Loan Officer, Certified Military Housing Specialist - iLoan - NMLS ID# 79048 - CA DOC, MN DOC & WI DFI - 612.234.7283

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Steven CookSteven T Cook
Loan Officer, MLO-293441      

Cascade Pacific Home Loans  NMLS ID 76988
720 S 333rd St  Federal Way  WA  98003
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Comments (6)

Will Nesbitt
Nesbitt Realty at Condo Alexandria - Alexandria, VA
Nesbitt Realty is a family-run brokerage.

Steven Cook is the professional to see in Tacoma WA - contact him at (253) 874-1111. Keep up the good work! Have a nice day.

Aug 22, 2013 05:07 AM
Steven Cook
No Longer Processing Mortgages. - Tacoma, WA

Will --- thanks for stopping by and commenting on this important topic.

Aug 22, 2013 05:25 AM
John Pusa
Berkshire Hathaway Home Services Crest - Glendale, CA
Your All Time Realtor With Exceptional Service

Steven - Thank you for sharing another excellent blog about Fannie Mae increases down payments on MyCommunity and standard loans.

Aug 22, 2013 07:57 AM
Steven Cook
No Longer Processing Mortgages. - Tacoma, WA

John -- thank you for coming by and commenting.  Glad I saw this so we can get the word out, so people thinking of using that program can get in before the change.

Aug 22, 2013 07:59 AM
Sally K. & David L. Hanson
EXP Realty 414-525-0563 - Brookfield, WI
WI Real Estate Agents - Luxury - Divorce

They didn't ask me of course...does not appear to be a step in the right direction for lending....again !

Aug 27, 2013 07:57 PM
Steven Cook
No Longer Processing Mortgages. - Tacoma, WA

Sally and David -- why would you think they would ask those of us in the business?  They know it all, so they will just make up the rules they like, because business and marketplace rules don't apply to them (apparently).

Aug 28, 2013 02:49 AM

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