What is "Fannie direct" (and why your lender should be)
It's hard to keep up with all of the mortgage industry jargon, especially when one phrase can mean so many different things. The latest phrase I've gotten many questions on is the"Fannie direct" loan option. This is an important one to be aware of for both consumers and anyone else in the real estate industry, and could be the difference between getting a loan or getting declined.
Fannie direct simply means a lender sends their loans straight to Fannie Mae, and not to an intermediary servicer. When most conventional mortgage transactions are originated, they are packaged together & sold to a servicing entity, normally a big box bank or a "too big to fail". While every conventional loan uses the Fannie Mae (or Freddie Mac) sellers guides as a way to establish underwriting guidelines, problems often pop up when it comes to risk management.
While Fannie Mae's selling guide may allow for certain things, loan servicers often strap their own guidelines on top of what Fannie recommends, commonly referred to as "lender overlays". This becomes both tricky & confusing because each investor may have their own set of lender overlays. During a loan transaction, your mortgage originator may know an investor's overlays and wrongly assume that a loan cannot be done because of an overlay. In reality, perhaps the loan COULD be done but would just need to be sold to a different servicer, or go "Fannie direct". It's important that your lender be a "Fannie direct" lender because you'll have access to more options in the loan process. For real estate agents, this means clients who may be denied based on lender overlays can be approved with a "Fannie direct" lender.
Here are some examples of loan scenarios which might be declined due to investor overlays, but can be approved with a "Fannie direct" loan program:
- a borrower has a FICO score of 625. Many lenders have a minimum FICO of 640 on conventional loans, and some are even as high as 660. These higher scores are investor overlays. Loans are eligible for Fannie direct down to a 620 FICO score.
- A borrower has 7 financed properties. Many investors have an overlay that limits a borrower to 4 financed properties. With Fannie direct lenders, financing is available for borrowers with up to 10 financed properties.
- A borrower is putting 10% down but the entire 10% is a gift. A very common investor overlay requires borrowers to contribute 5% of their own funds unless they're putting 20% down total. With a Fannie direct loan, there is no minimum borrower contribution for a purchase of a single family primary residence.
- Credit documents under a Fannie direct program are good for 4 months. This means that borrowers won't be hassled to constantly update their documentation along the way.
-A borrower wants to buy an investment property, but is having trouble coming up with down payment funds. Many 'big box' servicers require 20-25% down payment in a non-owner occupied property. Fannie direct only requires 15% down.
There are many other Fannie direct guidelines that help open the door to lending options that many investors don't have. For a complete list or questions on a scenario, give me a call at 484.680.4852, or stop by my website and ask an expert!
Is Mason McDuffie Mortgage able to do loans 'Fannie Direct'? Why yes, yes we can : )