Fannie to Tighten Loan Criteria for Condos, Refis

October 3, 2012

Starting on Oct. 20, Fannie Mae will be tightening some of its underwriting standards for condo buyers and home owners wanting to refinance. The changes have some in the industry concerned, Realty Times reports. 

The new guidelines are aimed at reducing Fannie Mae’s risk as well as forcing more borrowers to shop around for mortgages. 

Among the changes coming Oct. 20 to Fannie-backed loans:

— Condo buyers who have less than a 20 percent down payment will have to complete a two-page condo questionnaire about the homeowner association’s finance goals as well as provide additional documents, such as a reserve study, by-laws, and a copy of the master insurance policy. Currently, only condo buyers who put down less than 10 percent are required to produce the extra paperwork. Some analysts predict that the extra paperwork could lead to more chances of loans being denied from Fannie’s strict condo loan underwriting criteria. 

— Fannie announced it will end discretionary approvals or “Expanded Approvals” for all Fannie Mae refinances, except for Fannie Mae’s Refi Plus Program loans or HARP loans. EAs were believed to help borderline borrowers qualify for a mortgage when they didn’t have a perfect combo of loan-to-value and debt-to-income ratios, creditworthiness, and financial reserves, Realty Times reports. 

— Self-employed borrowers also may face more hurdles in qualifying for a Fannie-backed mortgage. Fannie will require self-employed borrowers to provide two consecutive years of federal tax returns, instead of one, the current standard. Underwriters will base income on an average from the last two years of tax returns, Realty Timesreports.

“Because of the new two-year average approach, one bad year out of two could sink a self-employed home owner’s application even if the most recent year would have qualified him or her under the old rules,” San Jose, Calif., mortgage lender Shashank Shekhar writes for Realty Times.

Source: “Fannie Mae Tightens Underwriting Rules for Condo, Refinance Loans, Borderline Borrowers,” Realty Times (Oct. 3, 2012)

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