GSEs Announce Changes to Cash-out Refinance Eligibility Policies
Written By: Joel Palmer, Op-Ed Writer
Fannie Mae and Freddie Mac will be releasing new cash-out refinance eligibility policies over the next two months.
Fannie Mae announced its updated policy in a Selling Guide announcement last week. The new policy requires that any existing first mortgage being paid off through the transaction be at least 12 months old as measured from the note date of the existing loan to the note date on the new loan.
This change is in addition to the existing requirement that at least one borrower be on title to the subject property for at least six months prior to the disbursement date of the new loan, unless subject to one of the ownership exceptions permitted in the Selling Guide.
Lenders can implement the change immediately but must begin doing so with note dates on or after April 1.
Freddie Mac announced a similar 12-month eligibility standard to cash-out refinances in a Selling Guide Bulletin in December. Its updated policy goes into effect March 7.
Freddie stated the new seasoning requirement does not apply when:
The cash-out refinance Mortgage is a special purpose cash-out refinance Mortgage that meets the requirements in Section 4301.6, or
The first lien mortgage being refinanced is a home equity line of credit (HELOC).
Fannie also announced other changes to be reflected in its Desktop Underwriter (DU).
The first is a set of enhancements to support borrowers with nontraditional credit. Fannie has updated its policies to reflect the updated risk assessment for DU loan case feels when no borrower has a credit score. In that scenario, DU will apply the following requirements:
The property must be a one- to four-unit principal residence and all borrowers must occupy the property.
The transaction must be a purchase or limited cash-out refinance.
The loan must be a fixed-rate loan and meet the baseline loan limits for conforming loans.
Reserves may be required as determined by DU.
In addition, DU will conduct a cash flow assessment when the lender provides a 12-month, third-party asset verification report for the borrower. DU will assess the borrower’s cash flow management history to determine whether it can be used to positively supplement the credit risk assessment.
Other DU update involves MH Advantage comparables. If fewer than three MH Advantage sales are available for comparison purposes, the appraiser must supplement with the best and most appropriate sales available, which must include site-built homes.
Freddie Mac also implemented several policy updates in a Selling Guide bulletin this week.
One update involves the Freddie Mac CHOICERenovation that allows a borrower to use mortgage proceeds to finance property renovations.
Freddie eliminated the minimum contingency reserve requirement when this type of mortgage is sold to Freddie Mac with recourse, where the proceeds are used exclusively to finance the addition or renovation of outdoor structures used for leisure and recreation. Examples include swimming pools, decks, porches and patio additions.
Freddie also updated the completion and settlement date requirements for CHOICERenovation loans that are not CHOICEReno eXPress Mortgages. Borrowers not have 450 days to complete renovations instead of the previous 365 day deadline.
Freddie is also now permitting CHOICERenovation Mortgages to be used in conjunction with the Freddie Mac GreenCHOICE offering, which enables sellers to be eligible for a credit for GreenCHOICE Mortgages.
Freddie also announced updates related to the sale of existing manufactured homes in a subdivision.
One change is an update to the loan-to-value ratio calculation for these properties. It is now calculated using a value equal to the lower of:
The purchase price of the manufactured home and land, or
The current appraised value of the Manufactured Home and land
Also, for an existing manufactured home located in a manufactured home subdivision that is sold by a builder or a developer, or a manufacturer acting as a developer, Freddie has eliminated the seasoning requirement that required the manufactured home to be affixed to a permanent foundation at least 12 months prior to the application date.
