Friday September 5th 2008 Fannie issued an announcement pertaining to what most of us expected was coming. This has been a topic misunderstood by many investors and even mortgage brokers. Over the last several months many posters have incorrectly stated that Fannie changed their guidelines. Although many lenders implemented their own internal change, Fannie Mae had not until last week. The effective date is supposed to be December 1, 2008 but you'll probably see that many of those remaining true Fannie lenders will change within the next 30 days.
The changes will include:
* A limit of 4 financed properties when submitting an investment loan.Fannie also clarified that it does not consider the borrower to have an ownership in a property that is held in the name of a corporation, even if the borrower is the owner of the corporation. Those properties would not be counted towards the limit. ****Several factors that need to be additionally clarified and I will be checking on....Fannie distinguishes a difference between LLCs and corporations below in the seasoning comments; however here they do not say if corporations include LLCs. Also, they do not clarify how this is reviewed if there is a loan in the personal name showing up on credit but title to the property is held in a Corporation.
* 6 months for cash out refinances.
A rate/term refinance of an existing lien (unless that lien was a for a cash out refinance) will not have a seasoning restriction. If you purchased for cash and there was no lien then this rule would apply. To also clarify, if you purchased an investment property using a LLC (S corp or Corp not included) with loan note and title in the LLC name you can qualify for a refinance by showing continuity that you are a member of the LLC. Title of course has to be quit claimed over to yourself personally before application. (Seasoning still applicable)
* Investment properties listed for sale on the MLS within the last 6 months can be done as cash out up to 70% ltv. (Seasoning still applicable)
* Pricing adjustments with increases to rates for investor loans. Lenders pass along interest rates to borrowers and the rates are generally determined by risk layers. So a loan at 80% is a greater risk than at 75% and 70%. A loan in Michigan is more of risk than a loan in Missouri. The same applies towards credit scores. As brokers and bankers we have to look at the lenders rate sheet which has a matrix of risk factors. Looking down the matrix table to the left we have factors such as:
investment property
credit score
cash out
Looking across the top of those matrix tables you would see columns generally covering ltvs. One column may be for <60%, second usually 65%-70%, third at 70%-75%, and so on with changes at each additional 5%.
Other factors that affect the rate but not usually not tied to the ltv though are:
property type
state
loan size
So you cant always assume that a loan at 80% will have the same rates/costs as a lower ltv; even if you have top credit.
These changes to the pricing will mainly affect investors looking at properties up to 80%. Although, 75% will see slight increases as well. At 80% you'll probably experience additional costs as well. So if a broker/banker shows you a good faith estimate with "lender discount points" added in dont be alarmed. You can question this but make sure they're explaining the whole process behind how our industry gets paid and why true "lender" discount points are sometimes required by the lender.
I strongly recommend that you submit any loans and have them locked immediatley. Do not sit on the fence and try to be choosey about your lending source. If you have found someone that knows which lenders have not made changes then proceed. Lenders will usually grandfather in loans that have been locked and submitted and allow them 30 days to close after the changes have been made.
Keep in mind that a good brokers should also have some alternative sources for your financing needs. So although these conventional products may not be available in the future, local banks and portfolio lenders may be solutions for you.
