Tri-Valley Mortgage News

On the weekend of December 12, Fannie Mae implemented Desktop Underwriter (DU) Version 8.0. This new version brings with it many changes that could make it more difficult for buyers to obtain conventional purchase financing. Consider the following:

• Foreclosures older than 5 years but less than 7 years will require a minimum 10% down payment and a minimum 680 representative credit score. No second homes or investment property loans.
• Bankruptcies discharged/dismissed within the last 48 months may receive a Refer with Caution recommendation which could be difficult to overcome.
• Two unit principal residence purchases will now be limited to a maximum LTV/CLTV/HCLTV of 80%.

In the above areas, FHA guidelines are more permissive. For instance, the FHA foreclosure waiting period is 3 years. In fact FHA does not consider a short sale to be a foreclosure as long as the mortgage shorted was paid on time and that it was not an FHA-insured loan. For bankruptcies FHA requires a waiting period of only 2 years for Chapter 7 (sometimes only 1 year with extenuating circumstances). Chapter 13 bankruptcies have no waiting period. As long as the borrowers have paid their plan on time for 12 months they are eligible for FHA financing even before discharge. Finally, although FHA does not insure investment property loans, a buyer can purchase up to four units and use maximum financing of 96.5% LTV.

Fannie Mae's updated guidelines are not surprising given the desperate state of its financial solvency. The question is will FHA eventually follow suit in light of its insurance fund issues? In the meantime, real estate professionals can thankfully give their clients an attractive alternative to tightened conventional financing.

This content was created by Cari Anderson and originally posted on our "Mortgage Notes" blog.