Vienna, Virginia: Fannie Mae has updated its automated underwriting software recently. The changes are major and could affect how many potential home seekers actually become homeowners. Having a loan underwritten by an actual person are almost non-existent these days. Both Fannie Mae and Freddie Mac feel they are better served using their proprietary software programs.  Desktop Underwriter^® (DU) Version 8.0 has changes to credit score requirements and mortgage insurance coverage will include:

Maximum Debt To Income Ratios (DTI). This is the ratio of how much of your monthly income is being consumed by your monthly debt.

• Maximum DTI lowered to 45%, with flexibilities offered up to 50% (as approved by the software)

Minimum credit score requirement for home buyers in Fairfax, Virginia and Alexandria, Virginia

• Minimum credit score increased from 580 to 620 (excludes Fannie Mae^® DU Refi Plus^TM
• The REfi Plus loan is for homeowners that loans are owned by Fannie Mae (this is different than who you make your payment too) Click below to find out more. Find out if Fannie Mae or Freddie Mac owns your mortgage

High Balance Mortgage Loans over $417,000 to $729,650

• 2009 Temporary high-cost area loan limits will be supported by the new software.
• Eligibility guidelines and Appraisal Field Review requirements have changed

Mortgage Insurance (MI) – Coverage Changes

• Reduced MI and lower cost MI options will be retired for loans underwritten using new software
• With this change, Fannie Mae has introduced a new minimum MI coverage option with associated Loan Level Pricing Adjustments (LLPA’s). These are add-ons Fannie Mae charges for different loan scenarios.

Mortgage Insurance (MI) - Changes to Financed Mortgage Insurance Requirements

• Desktop Underwriter (DU) will be updated to allow financed MI using either a single premium plan that is paid at one time upfront, or a split premium plan that has both an upfront and monthly component

2-Unit owner-occupied interest-only LTV/CLTV changes. Loan To Value and Combined Loan To Value – Essentially state how much equity is in the home. 80% LTV is the same as stating a home has 20% equity for real estate in Fairfax, Virginia and Alexandria, Virginia.  

• Maximum LTV/CLTV reduced from 80/80% to 75/75%

Expanded Approval (EA) are gone!! A paper borrowers are the only ones that will be able to get a loan in the future.

• EA II and III recommendations will no longer be offered by DU 8.0

Fairfax, Virginia: The Treasury Department released guidelines and updated forms on November 30, 2009 for its new Home Affordable Foreclosure Alternatives Program (HAFA) for homeowners in Fairfax, Virginia and Alexandria, Virginia area. The HAFA program is supposed to compliment the HAMP program and applies to loans not owned or guaranteed by Fannie Mae or Freddie Mac. The intent of the HAFA program is to assist additional homeowners that are in distress while setting out clear guidelines for mortgage servicers and mortgage holders. The HAFA program also provides incentives to servicers.  The HAFA program is for homeowners in connection with the following situations:

1. A short sale
2. A deed-in-lieu of foreclosure (DIL) used to avoid foreclosure on a loan eligible for modification under the HAMP program.
3. Servicers participating in HAMP are also required to comply with HAFA when working with homeowners in the Fairfax, Virginia and Alexandria, Virginia areas.

The Governments home affordability plan has some new changes for loans not currently serviced by Fannie Mae or Freddie Mac.

Link to HAMP participating servicers: MakingHomeAffordable.gov.

Link to the website: www.hmpadmin.com

Link to the 43 page guidelines that could help homeowners the Fairfax, Virginia and Alexandria, Virginia areas: https://www.hmpadmin.com/portal/docs/hamp_servicer/sd0909.pdf

The supplemental directive 09-09, is effective April 5, 2010, but participating servicers may elect to implement HAFA prior to April 5, 2010, in accordance with the supplemental directive guidelines.

• Program offers eligible homeowners viable alternatives to avoid foreclosure;
• Preventing servicers from attempting to reduce real estate commissions established in the listing agreement as a condition for short sale approval;
• Releasing borrowers from future liability for the debt; and
• Providing financial incentives to borrowers, servicers and investors.
• Provides a viable alternative for homeowners who are HAMP eligible but cannot keep their home.
• Allows the use of financial information and forms already in the system in connection with a loan modification.
• Enables the homeowner to seek pre-approved short sales terms before listing the property.
• Requires borrowers in the Fairfax, Virginia and Alexandria, Virginia areas to be fully released from future liability for the first mortgage debt. At this time I am not sure how this applies release of second mortgages or HELOCs liability. (No cash contribution, promissory note, or deficiency judgment is allowed).
• Provides a standardized time frame and process for handling alternatives;
• Financial incentives:
  • $1,500 for borrower relocation assistance
  • $1,000 for servicers to cover administrative and processing costs
  • Up to $1,000 for investors for allowing a total of up to $3,000 in short sale proceeds to be distributed to subordinate lien holders (on a one-for-three matching basis).

I have clients all over the northern Virginia area. Recently two similar calls from clients that live in Alexandria and Vienna . Both had a question about keeping their current home as a rental when buying  another primary home.  As simple as this question may seem, it is much more complicated when trying to qualify for a mortgage carrying two mortgages. Fannie Mae and Freddie Mac have specific language for how much equity is needed in order to not count a current mortgage payment.

Fortunately both had the required equity in their current homes to avoid having to qualify carrying two mortgages. Other clients I have spoken to were not so lucky. The value of their home dropped to much and they had a big decision, sell or stay. What is the correct answer? Well that answer differs with every client I talk to. Below are the current Fannie Mae guidelines for converting a primary home to an investment home.

Borrowers who currently own their home typically have three options when they decide to purchase a new principal residence. The borrower can:

1. Sell the current residence and pay off the outstanding mortgage,
2. Convert the property to a second home, assuming they can qualify with both the existing and new mortgage payments, or
3. Convert the property to an investment property and provide documentation that they will rent the property and use the income to offset the mortgage payment.

On a primary home conversion to an investment property Fannie Mae will continue to permit up to 75 percent of the rental income to be used to offset the mortgage payment in qualifying if there is documented equity of at least 30 percent in the existing property (equity is determined from an appraisal, Automated Valuation Model, or Broker Price Opinion, then minus current value of the mortgages against the property).

The rental income must be documented with:

1. A copy of the fully executed lease agreement; and
2. The receipt of a security deposit from the tenant and deposit into the borrower’s account.

If the 30 percent equity in the property cannot be documented, rental income may not be used to offset the mortgage payment. 

Both the current and the proposed mortgage payments must be used to qualify the borrower for the new transaction; and

Six months of Principle, Interest Taxes and Insurance for both properties is required to be in reserves after closing. In today’s real estate market, this is where most borrowers get caught. Being able to save for the down payment, closing costs and have six months mortgage payment for two homes is typically too much for most borrowers to over come.

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With over 1,000 changes to FHA programs since 2000, it is important to work with someone that understands how the “new” FHA loan works.  In the last 5 years there have been significant changes made to FHA guidelines designed to make it much easier to originate these loans. but that has not actually been the case. Some changes make it more costly for the consumer. The Upfront MI charge has changed, the streamline progam has been altered and it could cost the consumer more money to refinance. Please call it you have any questions about FHA, VA or conventional loans.