Fannie Mae REFINANCE POLICIES revised: just looking at this stuff is scary, ladies and gentlemen. Fannie has seen all of the tricks in the book such as making a purchase look like a refinance, for instance. (It's a great way to get rid of those nasty down-payment requirements.)
Or making a cash-out look like a no cash-out. (After all, the no cash-out LTVs are higher, qualifying is easier, and int rates much better)
As a result, Fannie has come up with some fairly complex rules. They're attempting to allow the legitimate transactions, yet ensure that a purchase is a purchase and a no cash-out is a no cash-out. And surprisingly, I think they did a pretty good job!
Ill list here the new rules. It has been a little difficlt in th epast trying to figure out how to work these " out of the box" deals (almost all deals nowadays) but these rules will put things back into a A type - B type deal.
•1. Cash-Out Refi, Own 6 Months - This rule is exactly the same as Freddie's; it's clean and easy to remember. No cash-out refis unless you've owned the home for six months. Flat out.
•2. Lien Seasoning - This makes sense. You can't originate a cash-out refi, then turn around in less than six months and re-originate the same loan into a (cheaper) no cash-out. The rule is the same with Freddie.
•3. Continuity of Obligation (C of O) - Checking C of O (my own abbreviation) must be the very first thing that you do when you are structuring a refinance transaction. To have C of O, notice that the property must have a lien. If it does, just check down the list. If one of the items applies, you are home free.
•4. No C of O, Has Lien - Ah ha! If you can't fit your borrower into one of the categories from the C of O list, something screwy is going on. At least that's what Fannie thinks, and you're limited to 50% LTV assuming the client was on the title for at least six months.
•5. No C of O Because No Lien - If there is no lien, there is no continuity of obligation. An example is if your client purchased with cash. Bottom line, the loan is ineligible for the first six months. From 6 to 12 months use the lesser of the purchase price or appraised value for LTV, and after that you're okay.
Between 6 and 12 months, you MUST get a HUD-1 to verify the original purchase price.
•6. Listing - This is the very first time that either Fannie or Freddie has made actual rules about a home with prior listings. Every other rule came from the underwriter or the lender.
I can tell you for sure that if the appraiser takes a photo of the home and there is a For Sale sign in front of it the home's not eligible for a refinance.
•7. Title = Ownership - Whenever Fannie refers to ownership, the reference is to whomever has title.
Freddie Mac's Take - Freddie's the same when it comes to 6 month seasoning for cash-outs and 6-month lien seasoning (#2). So far, however, Freddie hasn't identified anything close to continuity of title requirements.