Fannie Mae Guidelines To Change December 13, 2010

Mortgage Guidelines Are Changing

Conforming mortgages are loans that, literally, conform to the lending standards set forth by Fannie Mae and Freddie Mac.

What's New With The Guidelines : A "Cheat Sheet"
Effective December 13, 2010, Fannie Mae adds new bumps to the lending landscape, and takes others down.

Guidelines are changing across 9 separate areas of the mortgage approval process. Collectively, the updates figure to impact nearly everyone in want of a conforming home loan. They run the gamut from income and assets to documentation and reporting.

A few of the more major changes:

•The 97% "Flexible Mortgage" is eliminated, replaced by a standard 97% loan subject to loan-level pricing adjustments
•Borrower "minimum contributions" are eliminated for 1-unit purchases with at least 3% down. Gifts and grants are permissible sources for a downpayment.
•All revolving debt must be included in debt-to-income ratios, regardless of whether there's "10 Payments Or Less". If there's debt, it must be counted.
•A 5% monthly payment against the balance must be assumed when no minimum monthly payment can be verified via the creditor, or the credit bureaus.
Furthermore, the new guidelines contain a note that former homeowners with a foreclosure on record must wait 7 years before re-applying for a conforming mortgage.

Bank of America Halts Foreclosures

Now Bank of America (BoA) has joined the crowd by freezing home foreclosures in 23 states as it investigates whether there were flaws in its process. "We have been assessing our existing processes," Bank of America said in a statement. "To be certain affidavits have followed the correct procedures, Bank of America will delay the process in order to amend all affidavits in foreclosure cases that have not yet gone to judgment in the 23 states where courts have jurisdiction over foreclosures." Bank of America did not have an estimate of the number of homeowners that will be affected by the delayed process. The announcement comes two days after JP Morgan Chase said it will also halt foreclosures for about 56,000 homeowners after learning that its employees may have approved foreclosures without personally reviewing loan files.

Property Taxes Decline

Civic property tax revenues started to decline in 2010 after years of growth, according to a report released by the National League of Cities on Wednesday. Cities expect property tax revenues to fall by 1.8% in 2010, after rising by 4.2% in 2009. This drop lagged the housing market collapse because property tax bills are based on assessments, which are slow to adjust to market value changes. But the worst is yet to come, according to the league's report. The full brunt of the housing bust won't be felt until 2011 and 2012 as more property values are reassessed. And commercial real estate values may dive in 2012, exacerbating the problem. Though income taxes are expected to rise 1.8% this year, relatively few cities have income levies. Instead, sales and property taxes dominate their revenue streams.

Tighter Guideline Restrictions Announced

Fannie Mae announced this week a host of changes to their underwriting policy for loans sold to them. As in the past, Freddie Mac will most likely match them. Here are some of the key changes that could affect your next loan.

The waiting period a buyer must wait to purchase another home after a foreclosure has been extended from 4 years to 7. If you had a short-sale, also known as a pre-foreclosure, you now must wait two years. Previously, there was no time restriction.

If you are purchasing a 2nd home, a 2-4 unit property, or obtaining a Jumbo Conforming loan, you must contribute a minimum of 5% of the down payment from your own verified funds. In the past the down payment could have all been gift funds from a family member.

HAMP A FAILURE, DEFAULTS ON THE RISE

According to a federal report released Friday, only 36,695 homeowners received long-term mortgage modifications in July under the Obama administration's Home Affordable Modification Program, known as HAMP. This brings the total to 434,717 borrowers who have successfully made it out of the trial phase. A month ago, 51,205 delinquent borrowers were given long-term assistance, but the number of people falling out of the program is on the rise. Some 12,912 homeowners had their permanent modifications canceled in July, 272 of whom paid off their loans. "While there has been some stabilization in the housing market, it remains clear that we have more work ahead," said Raphael Bostic, assistant housing secretary.

Mortgage Fee Trigger Raised

On Friday, the Federal Reserve Board of Governors raised the dollar amount of mortgage fees that triggers mortgage disclosure requirements under the Truth in Lending Act and the Home Ownership and Equity Protection Act of 1994 (HOEPA). The Fed raised the trigger 2% to $592, from the current $579, beginning in January 2011. The trigger amount is now 48% higher than the $400 originally set by HOPEA in 1994. HOEPA restricts credit terms such as balloon payments and requires additional disclosures when total points and fees payable by the consumer exceed the fee-based trigger (initially set at $400 in 1994 and adjusted annually) or 8% of the total loan amount, whichever is larger. Beginning in 2011, if a borrower is charged more than $592 in mortgage points and fees, the lender is required to disclosed credit terms. Every year the Fed adjusts the dollar amount that triggers disclosure requirements. This "trigger," which aims to increase transparency of fees charged to mortgage borrowers, is based on the annual percentage change reflected in the Consumer Price Index.

Foreclosed Homes Sell at 27% Discount

Homes in the foreclosure process sold at an average 27 percent discount in the first quarter as almost a third of all U.S. transactions involved properties in some stage of mortgage distress, according to RealtyTrac Inc.
A total of 232,959 homes sold in the period had received a default or
auction notice or were seized by banks, RealtyTrac said in a
report today.
The discount reflects the average sales price of homes in
the foreclosure process compared with the average sales
price of properties not in distress. About 31 percent of all
U.S. sales in the quarter were of homes in some stage of
foreclosure, RealtyTrac said.