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Fannie Lowers LTVs, Lifts Fees

Announcement 08-22 issued Friday

September 9, 2008

By MortgageDaily.com staff

Just prior to the government's seizure, Fannie Mae advised sellers out a number of changes to its guidelines that significantly lowered loan-to-values, raised fees and restricted eligibility on several programs.

LTVs on cashout refinances for 1-2 unit properties are being reduced to 85 percent from 90 percent, according to Announcement 08-22 issued Friday. If the LTV is above 75 percent, the minimum credit score has been lowered to 660 from 700.

The updated LTVs will be implemented in a future release of DU, and sellers can continue to utilize the old LTVs until then. On manually underwritten loans, the changes are effective on loans purchased or securitized on or after Dec. 1. The changes don't impact jumbo conforming mortgages.

On second homes, cashout refinance LTVs and combined LTVs have been lowered to 75 percent from 85 percent.

The maximum LTV for purchase transactions on investment properties has been reduced to 85 percent from 90 percent, while limited cashout refinance LTVs were cut to 75 percent from 90 percent. The highest LTV on investor cashout refinances was reduced to 75 percent from 85 percent.

Loan-level pricing adjustments on investment properties for loans purchased or securitized after Dec. 1 will be 1.75 percent for LTVs up to 75 percent, 3 percent with LTVs up to 80 percent and 3.75 percent for LTVs above 80 percent.

Fannie also noted properties owned less than six months will be ineligible for cashout refinances. Non-purchase junior liens will also be ineligible for refinance during the first six months of ownership.

Effective Dec. 1, if a property was listed for sale during the six months preceding an application, the LTV will be capped out at 70 percent on cashout refinances, though limited cashout refinances may be considered at the prevailing LTV on an owner-occupied property if it has been taken off the market and the borrowers confirm their intent to occupy it. In either case, the property must be off the market at the application date.

On cashout refinance transactions, at least one of the borrowers must have been on the loan being paid for 12 months or prove a relationship with the current obligor, including relatives and domestic partners. The title may have been transferred from a limited liability company if the borrower was a member of the LLC prior to the transfer. Also, inheritance or being awarded the property through divorce is acceptable.

When borrowers don't meet continuity of obligation requirements, the lower of the purchase price or appraised value must be used between six and 12 months' ownership on cashouts with no existing liens. On cashouts with existing liens, the LTV will be limited to 50 percent.

The continuity of obligation updates are also effective on Dec. 1.

Borrowers on second homes or investor properties will be limited to owning a total of four financed properties.

If a borrower hasn't sold a current residence before closing on a new residence, both payments will be counted in the debt-to-income ratio and six months' PITI reserves will be required for both properties. However, if the current residence has at least 30 percent equity, required reserves will be lowered to two months.

The current property's payment can be excluded from income qualification if the buyer of the borrower's current property has signed a contract and has been cleared of any financing contingencies.

The pending sale guidelines are effective on Dec. 1.

Interest-only loans must only be underwritten through Desktop Underwriter and will no longer be manually underwritten. This applies to streamline refinances under option A Select and B, though an interest-only feature will continue to be eligible for the new mortgage under Streamlined Refinance Option A (Fannie Mae to Fannie Mae).

The limitation on IO loans applies to loans purchased after Nov. 30 and mortgages delivered into mortgage-backed securities with issue dates after Nov. 30. On 90-day whole loan commitments, expanded approval recommendations are immediately unavailable.

Effective immediately, restructured loans cannot be delivered to Fannie on a flow basis.

Fannie and its smaller cousin, Freddie Mac, were placed into conservatorship by the Federal Housing Finance Agency on Sunday in one of the biggest government bailouts in U.S. history.

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