Fannie Mae New Rules for Delaware Home Buyers Effective January 2014

Fannie Mae released an update to its Selling Guide SEL-2013-06 which will be effective January 10, 2014 with the update to automated underwriting system DU version 9.1. The update makes the following changes to conventional mortgage loans sold to Fannie Mae:

• No longer accept mortgages with terms greater than 30 years (So no more 40-year mortgages)
• No longer accept mortgages with an interest only option
• Adjustable Rate Mortgages (ARMs) that are 7 years fixed or 10 years fixed will need to be qualified at higher of note rate or fully indexed rate whichever is higher
• No longer allow Loan-to-Value (LTV) over 95% (So no more 97% LTV Loans!!!)
• Will force Lenders to purchase back loans that can be proved to fail the ATR (Ability to Repay) test

The 97% Loan that is no longer eligible includes the My Community Mortgage programs and the HFA programs. The ATR test is the biggest change that most people will not directly see as it will affect how lenders underwrite loans after January 10, 2014. The new rule says that if a loan defaults at any time during the 30-year term of the loan, Fannie Mae can review the loan and if determines the lender failed to adequately document the borrower’s ability to repay then the lender must indemnify Fannie Mae for the complete loss. The big problem is Fannie Mae has not clearly defined what a lender is supposed to do in order to document the borrower’s Ability to Repay a loan. This means Fannie Mae can subjectively decide if a lender passes the ATR test when a loan goes bad.

Lenders will, therefore, be much stricter on underwriting loans after the January 10, 2014 implementation date of this rule as to not be on the hook for anyone loan for the next 30 years. The direct impact on consumers will be more tightening of mortgage credit and fewer people qualifying for conventional.

If you have questions on Fannie Mae Loans or would like to apply for a Delaware home loan, please call 302-703-0727 or you can APPLY ONLINE.

John R. Thomas – NMLS 38783

Certified Mortgage Planner – Primary Residential Mortgage, Inc.

302-703-0727 DE Office / 610-906-3109 PA Office / 410-412-3319 MD Office

248 E Chestnut Hill Rd, Newark, DE 19713