Fannie Relaxes Underwriting Rules for Cash-Out Refis

Government-sponsored entity Fannie Mae (FNM) announced in a memo dated from Wednesday that it has relaxed its underwriting rules for certain cash-out refinance activities for borrowers with Fannie-held mortgages. These “flexibilities” will include a relaxed eligibility criteria, as well as reduced documentation requirements, according to Fannie. For loans with a loan-to-value ratio less than or equal to 80 percent, Fannie will not require the 580 minimum credit score. High-balance ARM loans with an LTV ratio less than or equal to 80 percent similarly will not be subject to the 680 minimum credit score. Loans up to 80 percent LTV can be used on second homes, cooperative units or investment properties now, whereas these transactions were restricted to 75 percent LTV ratios before. Fannie also relaxed the employment documentation requirements to one current pay stub, a verbal verification of employment and one year’s federal income tax return. The property fieldwork documentation requirements now stipulate the appraisal requirement may be waived — for a $75 fee — for lenders participating in the cash-out refi options. For loans delivered into mortgage-backed securities, the fee will be drafted in accordance with the requirements of the Selling Guide, Fannie said, while loans delivered pursuant to a cash commitment will have the fee taken from the purchase price upon delivery. In the same memo, Fannie announced “updated” property fieldwork requirements for foreclosure or REO property sales. “The recent increase in property foreclosures has resulted in some real estate owned (REO) properties being neglected and/or sitting vacant for an extended period of time before they are sold to new homeowners,” officials said in the memo. “In these cases an exterior-only property inspection or appraisal may not provide the most accurate assessment of the condition of the property. As a result, lenders will now be required to obtain an appraisal based on an interior and exterior property inspection for purchase transactions when the transaction is the result of the sale of an REO property….” Read the memo. Warren, Ohio-based First Place Financial Corp. (FPFC) announced Thursday it was one of five lenders selected by Fannie to participate in the new “HomePath” program, designed to sell off foreclosed homes owned by Fannie. The homes are available for a 3 percent down payment typical of any government loan, which can be paid by savings, gift or grant money, or a loan from a non-profit organization, state or local government or employer. Mortgage insurance and appraisal fees aren’t required, according to the lender. Write to Diana Golobay at Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.

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