New Fannie Mae Changes

Written by betsy

Fannie Mae has announced new changes to trailing secondary wage earner income, age of credit documentation, verification of employment and verification of stocks, bonds, mutual funds, and retirement accounts which will become effective September 1, 2009. What does this mean to you?

Lenders/banks have already become more cautious on approving mortgages. These new changes will affect whether you can qualify for a loan when you re-locate for your career, more documentation will be required, and the value of your assets will be less. Even though these changes go into effect September 1, 2009, look for lenders/banks to start tightening up on these changes already and even adding their own more restrictive guidelines over these.

Let’s take them one by one:

Trailing secondary wage earner income: The trailing secondary wage earner is a person who follows their spouse when that spouse is relocated in a different city. The trailing secondary wage earner’s income could be counted towards qualifying for their new mortgage even though they don’t have a job in the new city. It was assumed that that trailing secondary wage earner would obtain a job as soon as they were settled in. This will no longer be allowed causing most relocating couples to re-think about moving for career advancement in their company or new company, they may have to rent until the trailing wage earner finds a job in the new city, or be approved on one income for their new home mortgage loan.
Age of credit documentation: This will change from 120 days to 90 days for existing construction and 180 to 120 days for new constructions. This shouldn’t affect the borrower too much as most most lenders/banks are already asking for updated documentation prior to going into final loan approval. If your lender/banker hasn’t been, be prepared to provide this to them not only in the beginning of your loan process but also towards the end if from start to finish, the process is going to be greater than 90 days.
Verification of stocks, bonds, mutual funds and retirement accounts: This change will affect your reserves. Lenders/banks normally look at stocks, bonds, and mutual funds at 100% face value. Now, your assets will be at 70% and your retirement accounts will go from 70% to 60%. And your stock options will no longer be considered. What this means for the average borrower is most lenders/banks like to see at least six months of reserves in your bank accounts causing your reserves to be lower than the “like to see” and sometimes “required” amount. This doesn’t necessarily mean your loan won’t be approved but it could mean that your mortgage interest rate may be higher.

Remember, lenders/banks are in the business of making mortgage loans. Lending on mortgage loans is how these insitutions make money. Selling them to Fannie Mae and Freddie Mac is how they can do more mortgages. But if your mortgage can’t be sold into Fannie Mae or Freddie Mac because the loan package wasn’t documented according to Fannie or Freddie guidelines then that mortgage is left on the insitutions’ books. To insure the mortgage can be sold to Fannie Mae or Freddie Mac, lenders/banks normally have their own “stricter” guidelines overlay on top of Fannie and Freddie’s guidelines.

As always, feel free to contact me with your questions or concerns.