26 Sep 08 
The Constant Changes to Fannie Mae Lending Guidelines
…And the Impact to the Real Estate Market.
The Real Estate Market is in the tank, toilet, down the drain or is flat out awful.
Wall Street is reeling and the Government is jumping in and attempting to save us from all the potential problems we “could” be facing.
All this fall out has created constant changes at Fannie Mae making it is more difficult to borrow money for Real Estate purposes than ever before. I am not here to judge BUT I have to give an opinion every once in a while so here it goes!
Looking around my Real Estate Marketplace and seeing all the troubled financial situations that have been created by shady lenders and unprofessional mortgage consultants and can’t help but wonder how this problem, being multiplied nationwide, isn’t more significant than it seems.
I know that foreclosures are up and that those people in troubled loans continues to rise. I see my email volume increase monthly with desperate people just looking for a suitable solution. I am not quite sure that tightening lending guidelines is the solution here because I see these changes as making things worse not better.
If these rules continue to tighten we will see very few homes being purchased, banks left with enormous volumes of foreclosed properties and financial difficulties running rampant across the country. It’s a ripple effect, financial problems in one industry causes problems in others and yet other so on and so forth.
OK now that I have that off my chest here is a list of changes to lending guidelines that will have a lasting impact on the Real Estate market:
- Unless you have more than 25% equity in your home expect the interest rate on a refinance to be considerably higher than someone who does. A three percent premium was just place on all loans whose loan to value exceeds 75% loan-to-value. Even at 75% you have a minimum 1.5% premium.
- So you are an investor and want to leverage your purchases. You are now limited to 4 properties!
- If you buy a property for cash for various reasons you will now have to wait 6 months to refinance that property for cash out.
- If you get a loan on a property putting down 50% and want to refinance some of that cash out, you will now have to wait 6 months.
- If you are looking to combine a first mortgage and a non-purchase second, a second mortgage taken out after the purchase, you will be considered a cash out transaction regardless of how long you have had that second mortgage. Because of this you are now limited to 75% loan-to-value on the new refinance.
- So you attempted to sell your home with no luck and have a need to refinance. Well you now have to wait a full 6-months even for a rate and term refinance. Making matters worse you are now limited to 70% loan-to-value for that refinance.
There are several more but these will give you a good sample of the Fannie Mae changes. I know there are those niche lenders out there who have the ability to arrange for a loan even if you don’t meet these guidelines but you can expect to pay a large premium for that loan. Remember Fannie Mae and Freddie Mac are the most common loans given to homeowners in the US. As the guideline keep tightening you can expect to have more issues with homeowners not being able to purchase of refinance.
As always, find a professional to work with and ask questions. If your representative doesn’t know the answer he or she won’t pay the consequences of not knowing, you will.
I am here to help so contact me via my BLOG at www.thelanegroup.blogspot.com or www.brentlane.wordpress.com
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Tags: brent lane, fannie mae, fannie mae changes, first mortgage, freddie mac, freddie mac changes, home equity, homeownership, interest rate on refinance, lending guidelines, loan on a property, loan to value, Real Estate, real estate market, wall street government
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It’s very difficult that the banks offer credits or personal lendings. In Spain the mortgages have hardened and the unemployment has increased. The economic situation has very badly aspect
Is there anything preventing you from refinancing at a different company during the 6 months or does this policy prevent you from moving your mortgage to another company?
We need to get a handle on the lending industry. How are we going to turn this housing mess around without financing? We’ll see what happens with this whole bailout plan.
Brent–what changes to lending practices would you propose?
The best thing to have in this situation is to have your own money saved up and make sure to do a good job at controlling and handling your own finances. Having equity is obviously the best thing to have in a home and at least 25% is a very good piece of advice.
The way to fix the debt crisis is going to be by just smart money management.
[...] Paul over at NewHomesection, a New Home resource site, has a post about the ever changing Fannie May guidelines. [...]
[...] recently updated at the time of writing this review which I always like to see! The recent post on Fannie Mae Changes was well written and useful info – and even the posts in their archive from over a year ago are [...]
I agree that we need to make some changes to the lending industry but 75% LTV might be a little too aggressive. That will prevent a ton of people from owning a home. It will prevent people from buying a home that can actually afford them.
Some of these changes are awful, but a few are certainly for the best. I think it really is important that people buy homes with down payments so they can have a reasonable amount of equity in the home. Not having equity in the home is what caused so many people to crash and burn in the mortgage meltdown.
Seems that some of these measures should have been put in places months ago. It will be interesting to see the effect this has on mortgage industry.
Las Vegas NV Real Estates last blog post..Monterey Auction
We won’t be seeing to many refinances with the new law, Most owners will be locked into a higher interest rate and won’t be able to have the opportunity to get a lower rate.
Dans last blog post..D.R. Horton Homes Tampa
I bought a $285,000 home last month which needs electrical work before it can qualify for a conventional loan.I took out an equity line on another property, I own, for $200,000 and paid the additional $85,000 from my own reserves. Once the electrical work is completed I want to take out a conventional loan for $200,000. The property is my prime residency do I have to wait 6 months before I can get a conventional loan?
More difficult to borrow, but not impossible. I would argue that *some* of this slowdown has been necessary for quite some time (during the free-wheeling subprime days). What goes up must come down for the general health of the economy over the long-term. Let’s just hope the bottom doesn’t totally fall out of this thing. We want a slow-steady rise, not a jagged fly-high/crash hard scenario.
I’m sure everyone is expecting Obama to do something, ie. offer 2.99% 30 year rates, tax abatements, credits, etc.. The bottom line is that no matter what incentives we get it is going to take a LONG time for the inventory to dry up, thus will keep values down for quite a bit. I had a friend of mine refinance a house for the FIRST TIME the other day which he originally bought in 2002. He had to bring $40,000 to the table because of a huge value drop. Shame
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