Skip to main content

FANNIE MAE TIGHTENING LENDING GUIDELINES (AGAIN)

The FBI released it's annual report on mortgage fraud earlier this week. Virtually all law enforcement and industry statistics show an upswing in mortgage fraud activity.

The Mortgage Bankers Association released the National Delinquency Survey last week, reporting that the increase in foreclosure rates between quarters has reached its highest point since 1972 (when the records were first kept). The increase in foreclosures on first time mortgages increased by 36% between the first quarter 2008 and first quarter 2009.

Little wonder why lenders are scrutinizing loan applications with an even finer toothed comb.

Nor should it come as any surprise that lending guidelines are getting even tighter than they already are. Fannie Mae recently announced several new underwriting / eligibility guidelines that will become effective September 1st.

Some key changes all Chicago area home buyers (and their agents) need to know:
  • Buyers wishing to purchase owner occupied 2 flats will need to make 20% down payments. Investment 2 flats will be limited to 75% loans. (These new loan to value ratios conform to existing standards for 3 & 4 unit buildings).
  • Stocks, bonds, and mutual funds will only be valued at 70% of the current worth (reduced from 100%); Retirement accounts at 60% reduced from 70%). Stock options & non-vested restricted stock will not be eligible for use as reserves at all. (Lenders are hedging against further stock market declines)
  • "Trailing secondary wage earner income" will be disallowed. (projected employment & income anticipated, but not currently earned by a borrower, such as a spouse relocating who is currently employed but does not yet have a job lined up here in Chicago).
  • Tip income can only be used qualify for loans if a borrower can prove tip earnings for two years and if his or her employer indicates that tip income will "in all probability" continue. Such income will be counted based on a 2 year average.
  • The maximum age of credit documents will be reduced from 120 days to 90 days. (The paperwork used to "prove" a borrowers assets and income). New construction buyers get 30 days more - Buyers need to have good (current) records of their assets to support their applications.
  • 2nd loans & HELOC lenders will be allowed to recoup closing costs paid on behalf of the borrower if the borrower pays the HELOC or second mortgage off early, regardless of whether the lender labels this as a prepayment penalty. (Costs on 2nd loans are going to go up).
  • Borrowers will be required give lenders two sets of tax return authorization forms (once during the application process, and again at closing). Fannie is strongly encouraging lenders to actually pull tax returns from the IRS as part of the underwriting process
  • Final pre-closing verifications of employment must be well documented.

Buyers relocating to Chicago, Commissioned and tip-based workers, and folks intending to buy two-flats are going to be most severly impacted by these changes. But even with these new guidelines, well qualified Buyers will still be able to find lenders willing and able to make loans. It is just going to take a whole lot more effort to prove that they are indeed well qualified and they might find that they will be able to borrower substantially less money than they might have otherwise hoped to.

Savvy Buyer-agents are well advised to encourae their clients to start the loan pre-qualification process early, so that they can know know exactly what type of documentation they will need to gather for their loan underwriters and so that they can make reaslistic assessments of the loans they will be able to qualify for.

As always, I am available to answer questions about these guideline changes, and to help with other closing-related matter.

Comments

Popular posts from this blog

FHA Loans and Condo Sales - Is Relief on the Way?

By all outward appearances, state government in Illinois has ground to a complete halt, with all eyes focused on the Governor's "problem" and all the related fal - der -rah. Its hardly business as usual in Springfield, but not everything has ground to a halt. Several new bills have been introduced this week. That is not to say that they will be of benefit to we the people. Nonetheless, the cogs and gears are turning, and we are hoping for the best. One such proposal comes from Rep. LaShawn Ford of Chicago's west side, who is himself a real estate broker and entrepreneur . He is the author of House Bill 155 , introduced & referred to the Rules Committee Wednesday. It seeks to address one of the most common problems I am seeing in condominium resale transactions these days; the tension between many Declarations of Condominium and FHA loan guidelines. Many Condo Declarations provide Associations with a "right of first refusal," which basically allows t

So.... about the blawg

Nov. 2022 Hello Dear Reader. I started blogging on this site 15 years ago.  Crazy right? May or may not Chicago's longest-running blog about real estate law. I think so, but who knows, Whether it is or isn't doesn't, of course, really matter.   Either way, it's been a blast.  But things change. We've pulled up the tent stakes here and are relocated on other platforms. Want to follow along? Join us on the mothership I'm also writing on LinkedIn Thanks for everything.

PLM Title Shuttered

Title insurance is a critically important part of any real estate transaction; or at least it should be. The title company guaranties the "quality" of an owners interest in the property - that there aren't any (unknown) liens or defects. No buyer that I work for will purchase a property without it. Title insurance is only as good as the insurer. We want to know that the insurance company, like the Rock of Gibraltar , will always be there. We want to sleep easy at night, knowing that the client is protected. That said, it was a bit distressing to see that PLM Title Company shut its doors, without any forewarning last week. Worse still, this morning's news is that there is a criminal investigation underway - and that we do not yet know why. Old timers like me shudder with memories of the great Intercounty Title debacle five years ago. Here's to hoping that this one is nothing like that one. Set aside the problems involved trying to make a claim against a defun