Changes to Fannie Mae Guidelines
Fannie Mae has announced a new underwriting model to take effect June 1. There are several changes, some for the better and some for the worse.
Fannie Mae generally sets underwriting standards for "conforming loans". Other than FHA, VA, and a small number of other programs, meeting Fannie Mae guidelines is necessary for the homebuyer to get a "good rate".
Although the conforming universe has tightened considerably in recent months, financing is still readily available at very good rates for the well qualified borrower. These changes have not been directly related to the subprime and Alt A problems, and they have been far less drastic.
Among the changes:
- Maximum allowable debt-to-income ratio will be lowered in many situations.
- Time since a foreclosure will be five years. The old rule is two years.
- 60 days late on a mortgage within the past year will be a deal killer.
- Minimum credit score will be 580. Many lenders have already gone to this.
On the positive side:
- Several "A minus" credit situations, which had been ineligible, will now be eligible, including manufactured home purchases and cash-out refinances on rentals.
- Self-employment will be treated a bit more favorably.
The transition from old rules to new will be handled as follows (according to at least one lender; expect practices to vary): New files initiated before June 1 will be usable through September. Thus, I would encourage anyone looking for financing to begin the process before June 1. Then, the old rules would apply. New applications after June 1 are stuck with new rules.
IN OTHER WORDS, SOMEONE WHO EXPECTS TO NEED FINANCING ANYTIME SOON SHOULD BEGIN THE PROCESS ASAP. This will keep all their options open.