Fannie Mae Guidelines To Change December 13, 2010 : Here’s A “Cheat Sheet” To The Changes

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Fannie Mae is changing its mortgage guidelines.

Starting shortly before the New Year, home buyers and would-be refinancers may find it harder — or easier! — to get conforming-mortgage approved.

It depends on your personal credit profile.

Mortgage Guidelines Are Changing

Conforming mortgages are loans that, literally, conform to the lending standards set forth by Fannie Mae and Freddie Mac.

Often called “guidelines”, the standards are the series of checklists that stand between a mortgage applicant, and his loan approval.

Conforming mortgage guidelines include things like maximum loan-to-value limits, and minimum credit score requirements, and they tend to change over time. Through the first 9 months of this year, for example, Fannie Mae issued 13 such updates.

Most guideline changes deal in the esoteric and, as such, have had limited impact on the borrower class as a whole.

This December’s changes, however, are “mainstream”.

What’s New With The Guidelines : A “Cheat Sheet”

Effective December 13, 2010, Fannie Mae adds new bumps to the lending landscape, and takes others down.

Guidelines are changing across 9 separate areas of the mortgage approval process. Collectively, the updates figure to impact nearly everyone in want of a conforming home loan. They run the gamut from income and assets to documentation and reporting.

A few of the more major changes:

• The 97% “Flexible Mortgage” is eliminated, replaced by a standard 97% loan subject to loan-level pricing adjustments
• Borrower “minimum contributions” are eliminated for 1-unit purchases with at least 3% down. Gifts and grants are permissible sources for a downpayment.
• All revolving debt must be included in debt-to-income ratios, regardless of whether there’s “10 Payments Or Less”. If there’s debt, it must be counted.
• A 5% monthly payment against the balance must be assumed when no minimum monthly payment can be verified via the creditor, or the credit bureaus.

Furthermore, the new guidelines contain a note that former homeowners with a foreclosure on record must wait 7 years before re-applying for a conforming mortgage.

The Looming December 13, 2010 Deadline

In 9 short weeks, Fannie Mae rolls out its changes.  For buyers with little or no money of their own, the looser gifting guidelines will be a boon. For others who carry car payments or student loans, the tighter debt requirements may lead to turndown.

Overall, Fannie’s new guidelines favor personal income over personal assets; it’s not what you have, it’s what you earn. A re-ficus like this threatens self-employed persons and others with “good accountants”. Starting December 13, 2010, all mortgage approvals will be subject to the new guidelines.

Before the guidelines change, talk to a loan officer. Or, if you don’t have one, . I answer all my own emails and love to hear from my readers.

Dan Green is an active loan officer. Email or call 513-443-2020. Dan is on Twitter at @mortgagereports.