DU/Fannie Mae Changes...er...I mean Game Changers

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Mortgage and Lending with Mason-McDuffie Mortgage, Conventional Loans, Jumbo Loans, FHA, 203(k), USDA, VA, NMLS #138061 MMCD #1141
https://activerain.com/droplet/4FT5

DU/Fannie Mae Changes...er...I mean, Game Changers

 

 

     Attention!  Attention!  This one goes out to the "Getting a loan is nearly impossible these days" crowd.  Fannie Mae has recently taken a huge step to making things easier, helping to reduce barriers in home buying, and allowing us lenders to treat people less like criminals trying to scam us and Fannie Mae Guideline Changesmore like what most people really are - good, hard working folks trying to achieve the American dream.

 

 

     Fannie Mae often tweaks their program guidelines, and despite having a reputation of tough underwriting standards, does a pretty good job of keeping their product offerings and adapting to current market conditions.  With current market conditions being "lots of people want a home, rates are ideal for buying, but a shortage of inventory and tight guidelines are holding many back", Fannie Mae has decided to at lest help with the last problem.

 

 

     So what's changed?  This may come off as a little long winded and "jargony" (it's a word, trust me), so if you have any questions feel free to send me a message with any confusion I can clear up.  Also, think back to your database - anyone that has been hampered by these guidelines that are no longer in place?  I'm sure there are many.

 

 

Converting a principal residence to an investment property (when buying a new home)

 

     Previously, Fannie Mae had reserve requirements when a buyer already had a residence and would be converting that residence to an investment property rather than selling it.  This is a pretty common chain of events, as many people either decide to use a previous purchase as an investment opportunity, OR other times when someone is short on equity or can't sell in a time frame that is convenient to their new purchase.  In the past, Fannie Mae required a borrower to have 2 months of PITI (Principal/interest/taxes/insurance) reserves IF the buyer had 30% equity in their previous home.  If they had less than 30% equity, this requirement jumped to 6 months worth of reserves.

 

With the changes just made to Fannie Mae guidelines, these reserves are no longer needed!!!

 

     Also, under former Fannie Mae guidelines, in order to use rental income from a home being vacated/converted to a rental property to qualify for a new home purchase, that old home had to have 30% equity, and lenders were required to get an executed lease and evidence of a security deposit. 

 

With the changes just made, there is no equity required, and we only need a lease!!!

 

 

 

Stocks, Bonds, and Mutual Funds

 

     In the past, conventional loan guidelines only let you use a percentage of non-liquid/investment assets to qualify.

 

     With the recent changes, we can now use 100% of those funds.  Even better, if a borrower has those funds in excess of 20% more than is required for down payment/closing costs, no evidence is required to show that those funds have been liquidated (Read: No more closing delays because of delays in funds being transferred from investment accounts to available cash)

 

Important Note:  If the borrowers invesment accounts do NOT exceed 20% over what's required for down payment/closing costs, evidence of liquidation will still be required.

 

 

 

Unreimbursed Business Expenses (this one is my favorite)

 

 

     In the past, lenders had to subtract unreimbursed business expenses listed on tax returns from a borrowers income.  This made little (common) sense because many people look for every write off they possibly can when it comes to work, however in reality it really doesn't affect lifestyle/income/savings, or anything important - it's just a write off available to already over-taxed Americans.

 

 

     With the recent changes, if a borrower is qualified solely off of base pay, OR if they qualify using income from a bonus or commission BUT that bonus/commission income is less than 25% of their total pay, unreimbursed business expenses do NOT need to be held against a borrower. 

 

 

Important Note:  There is an exception - if the expense is an auto loan/lease payment, underwriting must still determine whether or not this line item should be factored in as a liability or deducted from income (depending on employment contract/car allowance/etc)

 

 

Union Dues/Other Voluntary Deductions

 

 

     Previously, these figures were required to be deducted from income or sometimes added into a borrowers profile as a liability.

 

     With the recent Fannie Mae changes, this is no longer the case.  Union dues and other voluntary deductions do NOT count against a borrower!

 

 

VERY IMPORTANT NOTE:  If you plan on taking advantage of any of these changes, make sure your lender has an agency direct product, as lender overlays will likely limit the benefit of some of these changes.

 

 

     There is still a long way to go in returning to common sense lending, especially with regard to self-employed borrowers and those folks out there with alternative income sources, but these changes are a huge step in the right direction, and an indication that reality is beginning to set in at Fannie Mae & Freddie Mac....the pendulum had swung too far in the direction of being conservative.  These new changes are a great move to help more people that deserve home financing get home financing.

 

 

 

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Re-Blogged 2 times:

Re-Blogged By Re-Blogged At
  1. Ginger Harper 07/07/2015 11:11 PM
  2. Melanie Cameron 07/08/2015 02:53 AM
Topic:
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Rainer
147,350
Paul Collier
Patriot Home Mortgage - Huntington Beach, CA
Paul Collier

Good old Fannie Mae changes her guidelines as fast a Hollywood couple changes their marriage status :). Good thing most of the guideline changes are for the better! Thanks for the update!

Jul 07, 2015 05:06 AM #1
Rainmaker
1,026,929
Susan Haughton
Long and Foster REALTORS (703) 470-4545 - Alexandria, VA
Susan & Mindy Team...Honesty. Integrity. Results.

There is a lot of good news in this post!  On rental property, is there no rental history required in order to use the income? A new lease is all that is needed now?

And a big yes on the unreimbursed expenses change...that's a big help for a lot of people. 

Jul 07, 2015 05:06 AM #2
Rainmaker
1,220,045
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

Anything we Lenders can do to educate and inform our clients ... and un-demonize our industry ... is great, John Meussner.  And your post nailed it ...

Gene 

Jul 07, 2015 05:11 AM #3
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Kathy Streib
Room Service Home Staging - Delray Beach, FL
Home Stager - Palm Beach County,FL -561-914-6224

John- lengthy, but I actually understood what you wrote.  Good job.  Your point about looking back at your database is an excellent idea!!!   

 

Jul 07, 2015 05:12 AM #4
Rainmaker
1,143,921
David Shamansky
US Mortgages - David Shamansky - Highlands Ranch, CO
Creative, Aggressive & 560 FICO - OK, Colorado Mtg

Interesting, some of this must have just hit as I had not seen it as of yet but have been slammed all day so...

Thanks for the info John, I am sure it will help make things easier for all

Jul 07, 2015 06:38 AM #5
Rainmaker
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Jon Kolsky
Kolsky Realty & Management - Long Beach, CA
Licensed California Real Estate Broker

John Meussner ~ this post is a wealth of valuable info, but more importantly this post screams why those looking buy real estate and need to borrow money must call you first!

Jul 07, 2015 08:21 AM #6
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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 - yes sir, but I'm glad to see this time they are helping people out, I like all of these changes and think they make a lot of sense.

 

Susan Haughton for conventional loans only, yes, we should be able to use rental income regardless of equity position with just a lease

 

Gene Mundt, Chicago-area Mortgage Lender - www.genemundt.com thanks buddy, always enjoy spreading the word when good news like this comes along!

 

Kathy Streib thank you, I really appreciate that comment because a lot of times my biggest challenge is communicating industry-speak so that others can understand the changes.

 

David - I saw the update last week but as of now we only have it agency direct, I don't think many investors are on board quite yet.

 

Jon Kolsky thank you, sir.  Always appreciate your support, and glad to share whatever knowledge I can if it helps home buyers!

Jul 07, 2015 08:30 AM #7
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Chris Ann Cleland
Long and Foster REALTORS®, Gainesville, VA - Bristow, VA
Associate Broker, Bristow, VA

This sounds like what the requirements were back in the day when my husband and I bought before we sold during the boom.  I can see the reasoning for the reserve money, or equity, and honestly don't know why they would change now.  It will make things VERY easy to get a loan, but from an experienced Short Sale Agent, that is not always a great thing.

Jul 07, 2015 10:41 AM #8
Rainmaker
507,033
Dan Tabit
Keller Williams Bellevue - Sammamish, WA

John, 

Anything that makes the process simpler, and open to more buyers/borrowers the better.  This is great news. 

Jul 07, 2015 11:18 AM #9
Rainmaker
1,317,476
Joan Whitebook
BHG The Masiello Group - Nashua, NH
Consumer Focused Real Estate Services

This looks a bit complex.  I always have buyer check with the lender to wade through the latest in the Mortgage department. 

Jul 07, 2015 12:35 PM #10
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Praful Thakkar
LAER Realty Partners - Andover, MA
Andover, MA: Andover Luxury Homes For Sale

John Meussner - okay, so now it's easy to prove 'Common Sense is not so common'.

Though one thing these changes will do is add some more air to the bubble of real estate  by making it relatively easy to borrow money (so it will burst soon!)

(Hope I got that right, John.)

Jul 07, 2015 02:12 PM #11
Rainmaker
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Joe Petrowsky
Mortgage Consultant, Right Trac Financial Group, Inc. NMLS # 2709 - Manchester, CT
Your Mortgage Consultant for Life

Good morning John. I have never understood this guideline, as someone could spend the money the day after the closing, so what difference did the reserves make anyway. Nice job sharing the information.

Jul 07, 2015 06:35 PM #12
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John Meussner
Mason-McDuffie Mortgage, Conventional Loans, Jumbo Loans, FHA, 203(k), USDA, VA, - Walnut Creek, CA
#MortgageMadeEasy Walnut Creek, CA 484-680-4852

Chris Ann Cleland easy money isn't always the best thing for people, but I think these changes are a good thing overall.  Hopefully it brings more buyers to market.

 

Dan - thanks for stopping by, I agree that if it makes things easier, chances are it's a good move!

 

Joan - that's a very smart move.  There are a lot of pitfalls when it comes to mortgages, best to leave it to the pros.

 

Praful Thakkar Oh I hope you've got it wrong, but I do think some areas are seeing bubble like conditions.  I do hope the new 'lease only' guideline will not result in "oh we'll just rent it out then!" actions when people have no true intent/experience being a landlord.

 

Joe - only thing I could ever think of is evidence of a 'propensity' for savings, and obviously if they have reserves chances of default are lower.  But as you say, reserves today are new furniture tomorrow ; )

Jul 08, 2015 01:08 AM #13
Rainmaker
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Michael Jacobs
Pasadena, CA
Los Angeles Pasadena 818.516.4393

Good morning, John -- jargony -- yeah it works and so does your post.  Congrats on the gold star and keeping all who follow you up-to-date on the always changing world of mortgages.  

Jul 08, 2015 01:15 AM #14
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Chris Ann Cleland
Long and Foster REALTORS®, Gainesville, VA - Bristow, VA
Associate Broker, Bristow, VA

Do you know if there will be any checking up on the leases presented to underwriting?  Make sure it's a legit lease and not Aunt Sally, who is really Mom's best friend, signing a document to solidify a loan for someone.

Jul 08, 2015 01:21 AM #15
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John Meussner
Mason-McDuffie Mortgage, Conventional Loans, Jumbo Loans, FHA, 203(k), USDA, VA, - Walnut Creek, CA
#MortgageMadeEasy Walnut Creek, CA 484-680-4852

Michael - thank you, sir.  Trying to communicate the jargony world of mortgages can be a struggle.

 

Chris Ann Cleland I can't be sure of that but I can't imagine there would be as it would go against the rule change.  That said, I'm sure lenders will apply overlays to this and dig deeper....but for agency-direct products, a lease alone should work.

Jul 08, 2015 01:28 AM #16
Rainmaker
742,992
Ritu Desai
Samson Properties - Ashburn, VA
Virginia Realtor-Fairfax/Loudoun/PW-703-625-4949

John, thanks for suming up. This is great information. Finally someone at Fannie Mae got brains and knew what would be pratical.

In Northern Virginia area we got lot of our buyers stop opting for  FHA loans because of unreasonable requirements and high fees. This is all great news!!

Jul 08, 2015 04:18 AM #17
Rainmaker
863,526
Les & Sarah Oswald
Realty One Group - Eastvale, CA
Broker, Realtor and Investor

Finally...changes for the better. This is a welcome change coming from Fannie Mae. Hopefully, this makes it easy for all hard working buyers who are looking to reach the American dream of home ownership. 

Thank you for expanding on the jargony...

Jul 08, 2015 07:02 AM #18
Rainmaker
527,647
Rob Spinosa
Guaranteed Rate, Marin County, CA - San Anselmo, CA
Vice President of Mortgage Lending, Marin County

I, too, applaud these changes.  While we in the industry immediately grasp the value of the additional capacity, we also remain aware that this helps offset Fannie's other recent moves which hiked LLPA's on some otherwise very creditworthy borrowers.  We will all rejoice loudest when their policies become entirely consistent with promoting responsible home ownership, but until then we'll take what we can get!  Great post.

Jul 08, 2015 11:58 PM #19
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