Changes to Fannie Mae’s policies on cashout refinancing, large deposits and seller requirements were added to the government-sponsored enterprise’s selling guide.
More “flexibility and clarity” were Fannie’s intentions for the guideline changes and term clarifications made for cashout refinance transactions.
Borrowers with legally awarded or inherited properties are now exempt from the six-month waiting period normally required on cashouts.
Unless the borrower was added to the title at least 24 months before the loan disbursement date, borrowers must provide continuity of obligation. As well, borrowers can bypass this demonstration if they paid cash for the property, or if they paid off prior mortgage obligations.
Delayed financing exception requires clarification about how the borrower took title at the time of the initial purchase, a HUD-1 Settlement Statement that reflects proceeds paid towards non-mortgage financing used to purchase the property, and the use of the current appraised value for the cashout transaction.
The delayed financing exception requirements and continuity of obligation for cashout refinances were both spelled out in Fannie’s Selling Guide Announcement SEL-2014-06.
The updates are immediately effective.
In November 2012, Fannie updated its large deposit and other asset policies to require written explanation and documentation for large bank deposits made over the most recent two months and exceeding 25 percent of monthly qualifying income.
“However, this approach resulted in unintended consequences, particularly in documenting unsourced funds that were not needed to complete the mortgage transaction,” the announcement stated.
As a result, Fannie has revised the requirement so it focuses solely on funds necessary for purchase transactions. Additionally, Fannie changed the large deposit definition from 25 percent to 50 percent in terms of deposits used as part of a borrower’s total monthly qualifying income.
Fannie immediately implemented the requirements.
Updated definitions for retail, broker and correspondent lending types were added and address scenarios not previously referenced. These scenarios include correspondent originations underwritten by the correspondent lender and broker originations closed in the broker’s name but funded by the lender.
The new definitions apply to whole loans delivered on or after Sept. 30 and mortgage-backed securities loans with pool issue dates on or after Sept. 1.
In addition to meeting Fannie’s net worth and liquidity requirements, sellers now must demonstrate financial adequacy to the GSE.
Within 90 days after their fiscal year-ends, lenders must submit annual, audited financial statements as well as Fannie’s authorization for verification of credit and business references form in order to meet this new requirement. Lenders do have the ability to submit this documentation in either hard-copy form or electronically and no longer have to provide copies of this paperwork to their lead Fannie regional office.
The financial reporting change have already gone into effect.
