For the first time in nearly six months, Fannie Mae is imposing strict, new guidelines on American homeowners. This time, the hardest hit demographic is owners of 2-unit homes.
In its official announcement, Fannie Mae listed the following changes to its 2-unit financing programs, separated by occupancy type.
Primary Residence:
- Purchase: Maximum loan-to-value drops to 80%; FICO minimum score now 640.
- Rate Refinance: Maximum loan-to-value drops to 80%; FICO minimum score now 640.
- Cash Out Refinance: Maximum loan-to-value drops to 75%; FICO minimum score now 680.
Investment Property:
- Purchase: Maximum loan-to-value drops to 75%; FICO minimum score now 660.
- Rate Refinance: Maximum loan-to-value drops to 75%; FICO minimum score now 660.
- Cash Out Refinance: Maximum loan-to-value drops to 70%; FICO minimum score now 680.
With Fannie Mae’s new loan-to-value limits falling by as much as 15 percent, it’s a certainty that fewer 2-unit homeowners will be approved in the mortgage process. This could slow both purchase and refinance activity in the coming months. What it does, then, by limiting the number of possible buyers is depress the home prices. This we do not need!
However, while Fannie Mae recommends that lenders institute the new policy immediately, September 1, 2009, is the “effective date”.
Therefore, if you plan to buy a 2-unit home, or if you own one and know you’ll need to refinance it soon, it may be a good idea to move up your timeframe. Lenders could implement the new guidelines at any time up until September 1. So please check with your lender to see where they stand.
The mortgage industry has gone through some a major overhaul recently, and there is more to come. The latest shoe to drop is the 100% financing / zero down mortgages. Not all of them are extinct, but don’t look to Fannie Mae or Freddie Mac to guarantee one. Now these mortgages are deemed a risky lending practice as house prices fall in many areas. Now they are deemed risky? That’s like gunshot wounds being deed risky now. Old milk? Risky now. Driving with your eyes closed? Research has shown that to be a risky behavior now, and should be avoided. But back when home prices were escalating out of sight, and many buyers were digging through their car seats for down payment money it wasn’t risky then? Creating “qualified” mortgage clients out of thin air and a wink wink and putting them in programs so far over their heads they could not see past the pre-payment penalty to come up for air was not risky? Making extra dollars from these people with elevated interest rates - because golden nuggets like 100% financing don’t come without a price - only to make more money on their necessary and eventual refi’s did not put the client at risk? Oh and the parting gift – you lose your house. We’ll explain negative equity and its dangers some other time, dear client. I must be really out of touch because I just can’t get my head around this one.
These loan increases will go into effect April 1, 2008 for 15-30 year fixed mortgages. The criteria for adjustable rate mortgages will not be available until May 1, 2008. To give an idea of the magnintude of the increase; previously, the loan limit on a single family conforming loan was $417,000.00. Please note that this is not to be confused with the new FHA limits stated in another post. 
