Got 50% down? $2 million in the bank as a safety net, but a 579 fico score? Fannie Mae says no thank you, we don’t want you!
Late on Friday Fannie Mae announced several important underwriting guideline changes to their automated underwriting system. Rather than bore you with the 11 pages of information, I figured I would boil it down to the important stuff that may affect you. These changes are very important because Fannie essentially writes the basic formula for 90% of the loans that are done in America. Lenders that offer loans outside of Fannie Mae still use there guidelines as the base of their decision making. It is important, however, to note, that Freddie Mac based loans are NOT SUBJECT to these changes…yet. It would seem very likely to see some update from Freddie in the very near future.
The most important of these changes is an automatic ineligibility to ANY Fannie Mae loan product with a credit score below a 580. No matter what, no 580+ fico, no loan.
The second most important is that Fannie no longer sees Self Employed people as carrying additional risk. Keith’s commentary on the self employed issue: Since most self employed people take certain liberties with their tax returns, and Fannie only uses the income that is left after those liberties; if their debt ratios are good after writing off things like a vacation to Bermuda and the family minivan, they should actually be LESS risk, since clearly the “usable income” is less than what they actually make. But, what do I know…
Below are 7 things you need to know about Fannie guideline changes;
- Fico scores below 580 are automatically ineligibly for a loan through Fannie Mae.
No if’s and’s or butts. - The maximum DTI has been reduced
Previously, debt ratios as high as 65% of gross income could be approved with good compensating factors…Fannie was one of the only places for these people to get a loan, not any longer (and really…if you have a 65% d/r is buying a house that great of an idea?) - Foreclosure seasoning goes from 2 years to 5 years
Careful how you leave a bad situation, Fannie will not lend to you for 5 years if you are foreclosed on. - Authorized-user tradelines will no longer be considered to be valid tradelines
So, if you are able to use Grandma’s MasterCard and she misses a payment, this used to count against you and no longer will. The monthly payment also will not count against you. But note; this only applies if you are an authorized user, not a co-signer. - Cash out will now be a higher risk factor compared to rate/term refi
Fannie officially makes a cash-out refinance an additional risk factor, though in practice I can tell you this was always the case. - Self employment will no longer be considered higher risk compared to wage earner
Just remember; we look at your profit for the year, not your total receipts (gross income). - Level Approvals (loans that require rate increases because they aren’t great but Fannie still wants the loan) now are available on more loan products
My Community Mortgages, Interest Only 30 year fixed rates, Investment Properties over 80% LTV, and Cash out refinances on second homes, and investment properties. This may seem like extra flexibility, but I believe this means that loans that formally wouldn’t require a loan level price adjustment (loans that would have been fully approved) are now going to receive these Level Adjustments. The net result meaning that the loans will still be available, but at a higher rate.
--Keith
**If you know someone else who would benefit from these updates, please pass this link on to them http://www.realestatemortgagenews.com
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