Fannie Mae enhanced guidelines effective on July 2017



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You may of heard or already know, but if you haven’t, here’s some very important good news about Freddie and Fannie!

Freddie has plenty of upcoming underwriting changes.

Fannie published a list of enhanced guidelines that will be effective on July 29, 2017. Here is a brief explanation of the enhancements and why LOs like them. Debt to Income (DTI) Ratio: Currently 45% is the maximum ratio a borrower can have and qualify for a loan. The new maximum DTI will be 50%.

Disputed accounts: In the old days borrowers would bombard the credit bureaus disputing derogatory credit items. The bureaus had to remove the item while it was being investigated which provided a small window for some borrowers to slip in and get a loan. FNMA and Freddie got wise to this loophole and said, “OK if you have a dispute then we are not going to underwrite the loan until the dispute is resolved.” FNMA will evaluate loan files with credit disputes, and in some cases will not require further action.

Fannie tells us that effective in July 2017, most tax liens and civil judgments will not appear on credit reports.

Self-Employed Documentation: Currently FNMA requires two years of Federal Tax Returns for self-employed borrowers. The new enhancement allows some (not all) self-employed borrowers to submit just one year of tax returns. Some LOs say that this may be the best enhancement of the bunch as it will really help many self-employed borrowers. The key is getting the borrower pre-approved to determine if he/she is eligible for the one year requirement. Freddie Mac used to have the one year eligibility requirement however Freddie Mac recently modified guidelines which are no longer as favorable.

Student loan cash out refinances: If a borrower is taking out cash to pay off a student loan, the refinance is not priced as a cash out loan.

ARM Loan to values (LTV): FNMA will allow a maximum of 95% LTV on ARMs.

Treatment of timeshare loans: Currently, timeshare loans are treated as a mortgage type loan. When a lender sees a mortgage late on a credit report the first instinct is to stop the loan. FNMA’s enhancement states that timeshare loans will be treated as an installment loan, like a car loan.

Real Estate questions?

Contact me at:

Andres Morales
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Tustin, CA 92780

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rateOne Home Loans
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