Fannie Mae Announces Underwriting Changes - Much Ado About Nothing

Fannie Mae announced some changes to their loan guidelines. Some of the changes make it easier to get that home loan you're finding for, while other make it tougher.

A word of warning here - the changes are Fannie guideline changes only. They do not reflect the so called "investor overlays" that are tougher than the normal program guidelines. Lenders place the tougher overlays onto the sponsoring loan program, Fannie in this case, to make the loans more spicy to investors. The sources of money in the mortgage chain - Mortgage Bankers and their banks that furnish lines of reputation to close loans - require that mortgage bankers consequent these overlays as they do not want to fund loans that are un-sellable on the secondary market. This means that the mortgage secondary market is still not wholesome and that we've not achieved a situation where money is flowing to market.

Current Fannie Mae Refi Plus Programs

For the most part overlays are strikingly uniform, though there may be tiny variations lender to lender. The best known overlay is the reputation score requirement on Fha loans. Fha does not mandate a minimum reputation score on its loans, though investors have overlaid one on Fha loans. The minimum started out at 580 and now is at 660.

Here are the changes Fannie announced:

Gift or grant funds of 5% are now standard from non-profits. This has all the time been a particular sore spot with sales agents, borrowers and lenders. While Fannie agreed to accept grant funds, extra diligence is required to decide if your lender will accept the grant. Also be aware that if mortgage insurance is required, the Mi firm may not accept the grant. Thus while your lender may take it, the Mi firm is an additional one cook in the kitchen with veto power over the approval.

The tougher news is that Fannie adjusted its debt-to-income ratio down to 45% from 55%. Its also announced changes to the manner in which it would use debt in the ratio, when the debt has ten payments or less to payoff.

45% has been the norm with lenders, so this change does not impact most if not all mortgage programs. What is considerable is that change to calculation of mortgage debt with less than 10 payments to run in the loan. Lenders have routinely exempted debt, revolving, mortgage, installment, etc., that could be paid off in less than 10 installments. This change seems to take this exemption away and force lenders to add the debt service back to the Dti calculation, development it tougher to qualify.

So while the Dti calculation is beyond doubt a no-change, inclusion of the balances that could be paid off in 10 months represents conclusion of one of the last techniques loan officers were using to get loans approved. I wouldn't even call it a loop hole.

Overall, this evidences the fact that the secondary market is still not in any place it needs to be.

Fannie Mae Announces Underwriting Changes - Much Ado About Nothing

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Underwriting Parameters of commercial Mortgage Refinance

Property owners conducting a market mortgage refinance are often surprised by the new range of loan programs that have come to be available in the last 5 years. Programs such as market 30 year fixed, second lien position loans, etc are turning heads. However the process is still expensive and time interesting and underwriting is still tied to the fundamentals - loan to value, debt aid coverage ratios, global income, property analysis, and prestige worthiness of the borrower.

Below is a brief narrative of the underwriting guidelines for refinancing a market mortgage.

Loan-to-Value Ratio

Ltv

Loan to value restrictions on your typical market mortgage refinance are dinky to 80% on rate and term and 75% on cash out refinances. However this guild line is what separates many banks from each others. Some get more aggressive and offer higher ltv's while others stay conservative and stay well below the percentages mentioned above.

This ratio is requisite to banks as they underwrite files with the worst case scenario in mind - "what if the borrower defaults and we have to take this property back and sell it on the open market?" The lower the loan to value, the less risk for the lender and therefore lower rate for the borrower.

Dscr

On speculation properties the Debt aid Coverage Ratio restrictions are typically set at a 1:1.25. Meaning that for every .25 of net wage (income after taxes, insurance, repairs, etc) the property produces, the mortgage payments cannot exceed .00. Said in other way, after all expenses and the mortgages have been paid, the owner needs to net $.25 to qualify for the typical market mortgage refinance.

Lenders that allow lower Dscr are thought about more aggressive (and commonly charge higher rates) while banks with higher Dscr requirement are the thought about the opposite - more conservative.

Global Income

For owner occupants a distinct type of ratio is used called the Global wage approach. Basically this ratio compares All wage the borrower has, together with firm profit, salary, dividends etc to All the expenses the borrower has together with personal and business. The maximum Global ratio commonly is 60%. For example, on monthly basis, if the borrower's total personal and firm wage is ,000, his total monthly debt cost would not be allowed to exceed ,000.

Property Analysis

The type of construction being refinance has a major impact on what financial options are available. For example, there's a huge distinction in what a bistro would qualify for vs. An apartment building. Market value, Market rent, appearance, location, accessibility, local Market conditions, as well as other factors play a major role into what refinance options will be available.

Credit Worthiness

The personal prestige worthiness of the borrower will be heavily scrutinized as this is an leading component. A 680 prestige score is the threshold for the best finance options. For smaller mortgages, prestige scores play a bigger role in the underwriting decision and interest rates are heavily influenced by the borrower's prestige score.

Every market mortgage refinance is unique and needs to be thought about on an individual basis. However, the above can give you a good idea of what the basic underwriting parameters are.

Underwriting Parameters of commercial Mortgage Refinance

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