Friday, March 21, 2008

Fannie Mae Changes

Changes occur everyday in the mortgage lending industry. In order to be the most efficient Loan Originator, it is important to stay on top of these changes and be aware of programs that become obsolete and new programs that may become available. As I discussed a couple of weeks ago, FHA loan limits have increased, which may ease a borrower's necessity to put down more than 5% toward their new home purchase. It may also allow for a refinance to someone who's current loan falls within the new limit of $346,250. This change doesn't affect everybody or ease the difficulties within the housing market and lending sector's of the financial industry. It may lend for new opportunites for an LO to prove their worth to Real Estate Agents and Title Companies.

Fannie Mae Guideline Changes Effective June 1, 2008

Market deterioration has led to the implementation of "revised standard pricing requirements for certain risk attributes" (See Announcment 08-04 from Fannie Mae). Which means, the higher the risk then the higher the price in originating a loan with Fannie Mae (Conventional, Conforming Loan Limit's <417k).>
  • LTV & Credit Score
  • Cash-Out Refi's & LTV & Credit Score
  • 2-4 Unit Properties.
  • On June 1, 2008, any loans will have the adjustments. Basically, they (Fannie Mae) developed a matrix that the lower your credit score and the higher the LTV the more expensive the pricing for the loan. This translates into higher rates for borrowers with lower credit scores and less money into the transaction.

    For example:

    • 95% LTV with 650 Credit Score = 1.75% adjustment to rate
    • 60% LTV with 700 Credit Score = .50% adjustment to rate

    The same type of mindset has been applied to cash-out refinances with Fannie Mae, after June 1, 2008, not providing cash-out refinances over 90.00%.

    These changes will significantly affect the rate environment that we are in and may make it more difficult to qualify borrowers and convince them of the rate structure. It is imperative that the word gets out to those buyers who may be on the fence and to those people who may be holding out for a better rate. Sure as day, unless they have a low LTV and impeccable credit their rate will be affected.

    It isn't likely that this change will solve the problems that arose over the last 6-12 months within the market or keep them from occuring again. However, now is the time to make sure that lenders and investors have done their due diligence to ensure they will insure the financial industry weathers the storm that blew in last Spring. Stay tuned tomorrow for more changes regarding PMI (Private Mortgage Insurance).

    Hope you have a wonderful final week in March.

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