What is "Fannie direct" & why your lender should be

Mortgage and Lending with Mason-McDuffie Mortgage, Conventional Loans, Jumbo Loans, FHA, 203(k), USDA, VA, NMLS #138061 MMCD #1141


What is "Fannie direct" (and why your lender should be)Fannie Mae


     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 : )




Re-Blogged 2 times:

Re-Blogged By Re-Blogged At
  1. Lenn Harley 11/03/2013 05:10 AM
  2. Bill and MaryAnn Wagner 11/03/2013 08:51 PM
Lending / Financial
Active Rain Newbies
New Jersey & Pennsylvania -- Realtors/Loan Officers/Title Clerks/Real Estate Lawyers
Mortgage Financing, Market Data & Forecast
underwriting guidelines
fannie mae guidelines
fannie direct
what is fannie direct

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Gita Bantwal
RE/MAX Centre Realtors - Warwick, PA
REALTOR,ABR,CRS,SRES,GRI - Bucks County & Philadel

I will bookmark this post and share it with others.

Nov 03, 2013 07:42 AM #8
Michael J. Perry
KW Elite - Lancaster, PA
Lancaster, PA Relo Specialist

So we should be quizing our lenders as to whether or not they're Fannie Direct ??!!

Nov 03, 2013 08:54 AM #9
Sharon Parisi
United Real Estate Dallas - Dallas, TX
Dallas Homes

John, "Fannie Direct" sounds like it may be advantageous for buyers.

Nov 03, 2013 08:57 AM #10
Karen Johnson, Realtor, ABR
Addison Wolfe Real Estate - Doylestown, PA
"Bucks County PA Homes"

Hi John, thanks for the helpful information and congratulations on your featured!  I did not know about Fannie Direct but now I do and thanks for the explanation.  Great post!

Nov 03, 2013 09:34 AM #12
Anna Banana Kruchten CRB, CRS 602-380-4886
Phoenix Property Shoppe - Phoenix, AZ
Arizona's Top Banana!

John - excellent information.  Fannie direct makes total sense to me.

Nov 03, 2013 10:46 AM #13
Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi
NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656 - New Lenox, IL
708.921.6331 - 40+ yrs experience

John:  When you deal directly with Fannie (or Freddie) the rules and objectives laid out are much more clear.  And many times, much more favorable and easily achieved by the client (and Lenders too).  This can be a very advantageous tool and benefit both.  Great post ... and great teaching tool ...

Congrats on the Feature!  Very well deserved ...


Nov 03, 2013 11:45 AM #14
Christine Donovan
Donovan Blatt Realty - Costa Mesa, CA
Broker/Attorney 714-319-9751 DRE01267479 - Costa M
John - This is important information as it could make the difference between getting a loan or not.
Nov 03, 2013 12:59 PM #15
Ralph Gorgoglione
Maui Life Homes / Metro Life Homes - Kihei, HI
Hawaii and California Real Estate (800) 591-6121

John, thanks for educating us about Fannie Mae Direct ... knowing the nuances of different financial options is always helpful information.

Nov 03, 2013 01:14 PM #16
Sharon Alters
Coldwell Banker Vanguard Realty - 904-673-2308 - Fleming Island, FL
Realtor - Homes for Sale Fleming Island FL

John, what a great education! I did not know the term 'lender overlays' but have definitely experienced them and especially once this summer when the lender was requiring something that had us all baffled and trying to pass it off as a VA requirement. Now I know the proper term was lender overlay. Next time I will know what to say to call their bluff :) Definitely asking if my favorite lender is "fannie direct" tomorrow.

Nov 03, 2013 01:43 PM #17
John Meussner
Mason-McDuffie Mortgage, Conventional Loans, Jumbo Loans, FHA, 203(k), USDA, VA, - Walnut Creek, CA
#MortgageMadeEasy Walnut Creek, CA 484-680-4852

Bob - always a good idea to use a lender that knows their Fannie!  haha thanks for the comment

Pamela - it is a shame there are so many overlays, good loans are declined a lot more often than they need to be.  Thanks for the comment.

Dick - thanks for the Bananatude honor!  Definitely a good idea to ask & ensure there are no overlays hindering your buyers.

Mitch - thanks for stopping by, I remember those whippin's all too well!


Jordon - thank you & likewise on the wishes for success!

Bill - thanks for the comment, just something to be aware of if a good borrower is being declined for an overlay.

Joan - the best alternative is to have no overlays ; )  Thanks for the comment!

Gita - thank you for sharing, and for taking the time to read & comment.

Michael - it is a good idea to know if your lenders have any overlays just in case you have a borrower that runs into one of them.

Sharon - it really is an advantage.  Sometimes borrowers get declined at one place and don't know they could get approved elsewhere.  Lots of overlays out there!

Kathy - it is very helpful.  I've had several borrowers that were declined or told wrong information from lenders who have overlays that our Fannie direct program doesn't have.

Karen - thanks!  For reading, and commenting.  The yellow star always leaves a great feeling.

Anna - thank you and thanks for stopping by!

Gene - great point, it really is a win-win in that everyone ends up playing by the rules that are clearly laid out by Fannie/Freddie.  A lot of the "mortgages are impossible to get!" garbage that's floating around the media could be avoided with fewer overlays.  Thanks for the comment.

Christine - absolutely, I've had a few borrowers who were turned down elsewhere because not every lender has a fannie direct program.

Ralph - glad you thought it was good info, it's always a good idea to know what lending options can help qualify more buyers.  Thanks for the comment!

Sharon - it happens all the time!  Many times even the loan originator doesn't know that it's just a lender overlay.  I've heard people say "that can't be done" because they didn't know options outside of their own programs.  Though it's not every buyer that benefits from a fannie direct program it's a good idea to have a lender option in case you run into the situation again.





Nov 03, 2013 02:02 PM #18
Ginny Gorman
RI Real Estate Services ~ 401-529-7849~ RI Waterfront Real Estate - North Kingstown, RI
Homes for Sale in North Kingstown RI and beyond

Excellent info on Fannie Mae Direct I too had no idea about John...thanks for sharing.

Nov 03, 2013 08:26 PM #19
Bill and MaryAnn Wagner
Wagner Real Estate Group - Ocean City, NJ
Jersey Shore and South Jersey Real Estate
John, Great information that can mean the difference between buying or not. Really significant for those trying to build a real estate portfolio. Re-blogged for my clients.
Nov 03, 2013 08:54 PM #20
Michael Setunsky
Woodbridge, VA
Your Commercial Real Estate Link to Northern VA

John, I was not aware of Fannie Direct. Thanks for the update.

Nov 03, 2013 10:27 PM #21
Raymond Denton
Academy Mortgage Corporation - Irvine, CA
Simple Man

I'm surprised to see so many experienced Agents not being familiar with Investor Overlays.

Nov 04, 2013 12:44 AM #22
John Meussner
Mason-McDuffie Mortgage, Conventional Loans, Jumbo Loans, FHA, 203(k), USDA, VA, - Walnut Creek, CA
#MortgageMadeEasy Walnut Creek, CA 484-680-4852

Ginny-  thanks for the comment, glad I could let you in on one of the industrys little secrets!

Bill - thanks so much for the reblog!  I think it is definitely something investors should be aware of.

Michael - thanks for stopping by.

Raymond - I'm always surprised to find out how many LO's don't know about overlays!  Thanks for the comment.

Nov 04, 2013 01:15 AM #23
Paul McFadden
Paratex - Seattle, WA
Pest Control, Seattle, WA.

John: Thanks. I agree with you in part. I have worked for Fannie Direct lenders for a bit now. My only thought is that Fannie is tightening up (43% DTI as of 1/1 on conventional loans) and there are rumors that Fannie and Freddie won't have the market share they now have by 2017 which I see happening. In other words, Fannie direct can be great ( as opposed to what brokers have to deal with re: overlays) but  it's a tough landscape for any lender right now. I look forward to either more portfolio lending or an easing of the guidelines that allows for more loans to self-employed borrowers, for example. Thanks again for your post!

Nov 04, 2013 02:23 AM #25
John Meussner
Mason-McDuffie Mortgage, Conventional Loans, Jumbo Loans, FHA, 203(k), USDA, VA, - Walnut Creek, CA
#MortgageMadeEasy Walnut Creek, CA 484-680-4852

Paul - agree 100%.  A fannie direct lender isn't necessary for every deal, but is a must-have in the aresenal to make sure every client is presented with all of the options available.  I also hope to see some more portfolio products come out that can start helping the self-employed.  Thanks for the comment!

Nov 04, 2013 03:23 AM #26
David Shamansky
US Mortgages - David Shamansky - Highlands Ranch, CO
Creative, Aggressive & 560 FICO - OK, Colorado Mtg

FNMA direct may have had its benes back in the day but in todays "thinner" marketplace many wholesalers who want to maintain volumes and not get hammered have removed the overlays so... while I agree with you in a market from 2-3 yrs back in todays mtg world, dont think it has much impact

Nov 06, 2013 09:36 AM #27
John Meussner
Mason-McDuffie Mortgage, Conventional Loans, Jumbo Loans, FHA, 203(k), USDA, VA, - Walnut Creek, CA
#MortgageMadeEasy Walnut Creek, CA 484-680-4852

Gotta disagree on that account David.  It's not in the top 3 products that I use, but I've used Fannie direct to help people declined at other banks - the overlays I see most are # of financed properties, FICO score, and gift funds for down payment > LTV.  Those 3 are pretty common.  Some wholesalers certainly have no overlays (or minimal overlays) but there are many others that still do.

Nov 06, 2013 01:49 PM #28
Mick Michaud
Distinctly Texas Lifestyle Properties, LLC Office:682/498-3107 - Granbury, TX
Your Texas Lifestyle is Here!

Just came across this post as a result of your other one regarding relaxed FNMA guidelines.  Is this still true regarding Fannie Direct?


Apr 26, 2017 10:30 AM #29
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