New Fannie Mae Guidelines - DU 9.2
There is a new version of Fannie Mae's automated underwriting system (AUS) coming out, and as of December 15 all new loan files packaged for Fannie Mae will be run through this new system (version 9.2).
While most guidelines remain in effect, and this shouldn't really change many people's plans, there are a couple of changes worth noting.
Cash-out LTV reduction
For primary residences, currently borrowers can do a cash-out refinance up to 85% LTV for a new fixed rate mortgage (75% for an ARM) on a primary residence. With the system change, this LTV will be reduced to a maximum of 80%.
I don't know why Fannie Mae is tightening the belt on this program considering nearly every other investor on the planet is slowly but surely getting more aggressive with guidelines - cash-out refinances seem to be bucking that trend, remaining pretty tight. I don't think this is necessarily a bad thing, BUT Conforming loans really need to get on board with HUD guidelines when it comes to a "cash-out" mortgage that is simply a consolidation of a 1st & 2nd lien. In my opinion, it makes a lot of sense to start viewing that type of transaction as a rate/term refinance so long as the 2nd lien isn't being used as an ATM.
New "message" for borrowers with more than 4 financed properties
Yes, people can have more than 4 financed properties (you are working with a lender that's Fannie-direct, right?). When a borrower has more than 4 financed properties, though, there are additional restrictions and guidelines that borrowers must meet to be approved. Here's the catch -
DU doesn't automatically issue "ineligible" findings when there's a potential problem. In DU 9.2 there will be a "reminder" message to lenders that they need to manually ensure Fannie Mae guidelines are being met for these scenarios.
Why is this important? If your buyer has more than 4 financed properties, you'd better be working with a lender that knows their guidelines and has already covered their bases in making sure the borrower really qualifies. Simply taking an application and running it through AUS isn't enough, even when AUS gives an approval. Some loan officers are notorious for not reading the complete AUS findings, so I imagine more than one person will run into issues because they didn't read this message and receive an "Approve/Eligible" finding.
Those are the only 2 changes I see having an impact on transactions. There are some minor message changes in the system but nothing that changes guidelines or how approvals are issued. The big one is the cash-out restriction on primary residences - if you know someone with questionable equity and is looking for a cash out refinance, have them get the process started sooner than later.