Mortgage Loans: Fannie Mae Squeezes Mortgage Standards

Home Buyers and Refinance: US Home buyers and refinance applicants will soon find mortgages harder to set

Fannie Mae gets tough with Home Loan Borrowers and Mortgage Lenders 

Fannie Mae is the largest source of money for the U.S mortgage industry and has warned mortgage lenders it will be raising some of its qualification standards for people buying homes, whether first homes or second home buyers, and also for those seeking mortgage refinance.

The changes to Fannie Mae Mortgage standards include lowering Loan to Value Ratios 

In the past mortgage borrowers could buy homes with no money down in some cases, but typically a 3% deposit [down payment] would get home buyers over the line.
Starting from October 2012, the changes to lowering loan to value ratios for some adjustable-rate mortgages to 90 percent, down from a maximum of 97 percent.
Mortgage applicants also require a better credit history than previously, with an increased credit scores requirements for certain loans.

Low doc home loans for the self employed tightened 

Fannie Mae also will start demanding more tax returns from self-employed borrowers. Many are expecting that many borrowers in self employment will suddenly find many mortgage avenues closed to them, and this may make some homes harder to sell.

Tougher Guidelines for Mortgage lenders 

Fannie Mae (FNMA) and its smaller Government Sponsored Enterprise mortgage intermediary Freddie Mac, guarantees mortgage-backed securities financing of two-thirds of all new loans, so more misery for the housing market is likely to continue for some time
Fannie Mae told mortgage lenders that the adjustments were part of regular reviews of data and loan performance.

Stricter Reporting standards

Both Fannie Mae and Freddie Mac will need to provide annual reports on actions they are taking “to reduce taxpayer exposure to mortgage credit risk.” The requirement is part of changes to the companies’ bailouts agreements the Treasury Department last week.

Credit Scores and Credit history

Fannie Mae’s tightened standards include an increase of minimum credit scores for adjustable-rate mortgages needing to be at least 640, up from a previous minimum of 620, [on a scale ranging from 300 to 850, with 850 being clear credit], and removing flexibility to move on this with mitigating circumstances. 

The concept of benchmarking will also be eliminated. 

Instead, 36 percent will be the “stated maximum,” [This ratio can be as high as 45 percent if the borrowers meet credit score or cash reserve thresholds.] This “provides more transparent requirements with regard to how compensating factors must be applied,” 

Borrowers without credit histories will only be able to apply for single family homes they intend to live in [owner occupied].

Appraisals to be more thorough

Fannie Mae will now require a full inspection to appraise the value of the property. [No more drive by, or kerb-side appraisals will be accepted.
Sworn Appraisals will mean valuers will be liable for overstating values and this has also been a problem in Australia in the past. 

Duplex dwellings are the exception

An exception to loan tightening is duplex dwelling unit blocks upping LVR to 85% Fannie Mae is loosening some standards with the loan-to-value ratio allowed for some fixed-rate loans on two-unit properties will increase to 85 percent, from 80 percent. Down payment requirements [deposits] also will fall for certain co-op loans. It is obvious where people buy a duplex home and rent one unit out, that these people will have fewer problems in repaying the mortgage.

Australia is watching these mortgage tightening

These developments are being watched in Australia, with several similar recommendations being made by the RBA and other Peak finance groups concerning Low doc loans and Loan to value ratios and even interest only home loans.

Mr Mortgage