Can you feel it? Can you hear it? Can you see it?
I am not talking about the weather or Barack Obama.
During the weekend of December 13th, major updates were implemented by Fannie Mae (FNM) that will influence home financing for years to come. These updates are a game changer and will have an impact for homeownership and the wealth affect.
All the updates, which encompasse a plethora of underwriting guideline changes, are to FNMs automated underwrite system (aka. Desktop Underwriter/Originator) that all consumers are required to be processed through for both agency and FHA insured mortgage products.
FNMs Desktop Underwriter (DU) is now called DU Version 7.1. Any automated approvals that have a prior DU Version will be scrutinized and potential denied per new guidelines.
The biggest change came in the form of loan-to-value (LTV) eligibility requirements. LTV simply references how much equity one would have either from a down payment or home price appreciation. Let's review some of these changes.
- 75% max LTV for purchase on 3-4 unit.
- 85% max LTV for cash-out on single family residence.
- 90% max LTV for purchase on single family residence.
- 90% max LTV for rate/term refinance on single family residence.
- 75% max LTV for cash-out on single family residence.
- 85% max LTV for purchase on 1-2 unit.
- 75% max LTV for rate/term refinance on 1-2 unit.
- 75% max LTV for cash-out refinance on 1-2 unit.
Another update that went under the radar was a Bankruptcy Policy Change. Specifically, the minimum allowable time period between the file date of a bankruptcy will be extended from 24 months to 48 months.
This will be disheartening for consumers who were able to buy a home several years ago at one day out of bankruptcy and will have no option to refinance due to guideline changes. It will also make it more difficult for buyers who have to seek shelter through the bankruptcy courts during this historic economic downturn.
Ready or not, change is here.