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More Knee Jerk Reactions in the Wonderful World of Mortgage Lending

By Tony Bolodar

Mortgage and Lending with NEXA Mortgage NMLS 1320876

July 02, 2008 04:43 PM

If you thought it was hard getting your client approved before, there are new FNMA changes coming August 1^st that will again change the ability of how we as Loan Officers have to look at business.

The new rules are as follows:

Current Requirements

•	Rental income that will be generated from the prior principal residence is based solely on a fully executed lease agreement for that property provided by the borrower (now landlord).

•	If the lender uses current lease agreements, the net rental income will be 75 percent of the gross rent from the lease agreement, with the remaining 25 percent being absorbed by vacancy losses and ongoing maintenance expenses.

•	Minimum reserves are required for investment properties: 2 months for one-unit properties, and 6 months reserves for two- to four-unit properties. Minimum reserves are not required for second home transactions.

New Requirements

Current principal residence is pending sale but the transaction will not be closed (with title transfer to a new owner) prior to the new transaction

Both the current and the proposed mortgage payments must be used to qualify the borrower for the new transaction.

Conversion to a Second Home

•	Both the current and the proposed mortgage payments must be used to qualify the borrower for the new transaction; and

•

6 months of PITI for both properties is required to be in reserves. Lender may consider reduced reserves of no less than 2 months for both properties if there is documented equity of at least 30 percent in the existing property (derived from an appraisal, automated valuation model (AVM), or Broker Price Opinion (BPO), minus outstanding liens)

Conversion to an Investment Property

Fannie Mae will continue to permit up to 75 percent of the rental income to be used to offset the mortgage payment in qualifying if there is documented equity of at least 30 percent in the existing property (derived from an appraisal, AVM, or BPO, minus outstanding liens).

The rental income must be documented with:

•	a copy of the fully executed lease agreement; and

•	the receipt of a security deposit from the tenant and deposit into the borrower's account.

If the 30 percent equity in the property cannot be documented, rental income may not be used to offset the mortgage payment.

•	Both the current and the proposed mortgage payments must be used to qualify the borrower for the new transaction; and

•	6 months of PITI for both properties is required to be in reserves.

FNMA does put the following disclosure at the bottom of this change:

These guidelines are applicable to manually underwritten loans and, except for the additional reserve requirements, must also be applied (on a manual basis) to loan casefiles underwritten with DU. DU will determine the level of reserves for each loan casefile.

So it will not matter if the automated system does not require these changes. The underwriter will apply the change to the case-file.

So your client that already owns a home and was just planning on moving into a new home and was going to rent their first home out, better have at least 30% equity in the first home. Otherwise, they WILL have to be able to support BOTH house payments even though they are going to be leasing the first house.

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Rate A Home - Saugatuck, MI

Tony, sounds like more work and equity for all. Understand why though...

Jul 02, 2008 06:50 PM

Tony Bolodar

NEXA Mortgage - Plano, TX

Residential Mortgage Loan Originator, #1320876

I do understand the more work. Why a young couple cannot start like many of us, buying and saving. Saving and then buying the second home, letting the first be some income for them.

Todays young people are getting the shaft here. They not only will have to save but they will have to put more money into the homes they buy. Two jobs wont be enough if they want to get ahead. It is these fine young people who do not have the same chance I had. Nor did I have the same chance my parents had. So when does it end?

Sorry for the rant but it is knee jerk reactions like this that are making it worse...not better.

Jul 03, 2008 04:22 AM

Tony, I understand. Some years ago I was on the board of the National Home Builders Asso. and one of the marketing campaigns we launched was "Where will our children live". That was more for the cost of homes sky rocketing, not it's where will our children get financing, argh.

Jul 05, 2008 09:12 AM

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