New Fannie Mae (Conventional) Guidelines
Fannie Mae has announced some changes to their conventional lending guidelines, effective immediately. This is a welcome announcement as the changes make underwriting guidelines more clear, and in some cases more lenient. They also improve pricing for certain borrowers. Have you had buyers turned down over the past 6-12 months because of these guidelines? If so, it's time to pick up the phone and see if they can qualify for a new home loan.
Keep in mind, these are Fannie Mae changes, and not lender-specific changes. That means if your lender is not Agency-direct, you may run into delays with implementation or a lack of implementation of the following guidelines. For this reason and many others, if you're not working with a lender that is agency-direct, you should be.
1) Debts paid by other parties
If a non-mortgage debt is paid by someone not applying for the mortgage loan, we can exclude that debt from debt/income ratios with evidence of the payment history. Previously, we had to prove that our borrower was not obligated on the debt (in case of default). This loosens up guidelines on which debts can be excluded, and should help a ton of people. Some examples are:
- People who opened accounts for friends/relatives with poor credit, but those friends/relatives make payments
- Parents who cosign student loans or car loans but their kids pay them
2) Student Loan Refinance
If a cash-out refinance is used to pay off student loan debt, there are now no pricing hits or changes for cash-out refinancing. Pricing will be the same as rate/term refinances. In the past, regardless of which types of accounts were being paid off (with the exception of purchase money 2nd mortgages), there was an increase to interest rate (sometimes a steep one) for cash out refinances. Now, provided the loan is just to pay off student loan debt, there will be no rate adjustment.
Note** This program cannot partially pay off a student loan. It has to pay the student loan in full
3) Less condo restrictions on refinances
Condo project approval is no longer required if:
- LTV is 80% or lower
- Project insurance is adequate and in compliance with Fannie Mae guidelines
- No time shares, segmented ownership, condotels, or houseboat projects
4) No seasoning on listed properties for cash out refinances
Previously, a listing had to be cancelled for 6 months before an owner could cash out to the max cash out limits of 80% LTV. Now, there is no waiting period, we just have to show the listing was cancelled.
5) Student loan debt calculation changes
Lenders can now use the student loan payment shown on a credit report, OR if a credit report doesn't have a payment, 1% of the loan balance or a fully amortized payment based on repayment terms. This will be nice for people with lower negotiated payments than 1% of the loan balance if they're shown on credit.
While these aren't huge changes, I can think of recent applications that would have been effected by at least one of the above. The biggest one will be the change to debt/income calculations when debts are paid by non-borrowers, but all of these moves are a step in the right direction toward loosening the reigns on underwriting and moving to more common sense standards.