Fannie Mae issued a lender letter that provides more details about its requirements for the Qualified Mortgage and Ability-to-Repay rule.
The secondary lender, along with its government-controlled cousin Freddie Mac, were directed in May by their regulator, the Federal Housing Finance Agency, to limit future mortgage acquisitions to QMs.
At the time, Fannie issued Lender Letter LL-2013-05 outlining its QM policy — though it plans to rely on representations and warranties that loans meet QM requirements.
The Washington, D.C.-based company issued Lender Letter LL-2013-06 on Tuesday providing additional information about the Ability-to-Repay and QM rule.
Fannie said that it will initially rely solely on lender selling representations and warranties that loans subject to the Ability-to-Repay rule are fully amortizing, have terms that are not greater than 30 years and don’t exceed 3 percent in points and fees.
“Fannie Mae will continue to apply the representation and warranty principles established in selling guide announcement SEL-2012-08, new selling representations and warranties framework, provided that loans meet the payment history and other eligibility requirements of the framework, and meet the three new eligibility requirements if subject to the Ability-to-Repay rule,” the letter stated.
A policy communication to be issued by Fannie next month will provide updates to the lender representations and warranties that address new eligibility requirements for loans subject to the Ability-to-Repay rule.
The August communication will also address policy changes related to loan eligibility for the new rule, which impacts loans with application dates on or after Jan. 10, 2014. In addition to loan terms, the interest-only prohibition and points and fees — the changes will address changes to policies pertaining to loans with prepayment penalties and changes to policies related to loans that are exempt from the Ability-to-Repay rule.
Another policy communication planned for September will address how Fannie will test lender compliance with the three new eligibility requirements, including any related documentation or other requirements.
“Fannie Mae will phase-in quality control testing in early 2014 as part of the post-purchase file review process,” the letter stated.
