Loan-to-value ratios on loans with adjustable rates are being reduced by Fannie Mae, while the ratios are being increased on some fixed-rate transactions. Fannie is also making changes to some of its credit score requirements. The maximum LTVs on adjustable-rate mortgages used for purchase or limited cashout transactions on one-unit primary residences have been lowered to 90 percent for both manually underwritten and Desktop Underwriter loans. The current maximum LTV is 97 percent through DU and 95 percent with manual underwriting. On the majority of other ARM transactions, LTVs are being cut by 10 percent, though the lowest LTV will be 60 percent.
The updates were outlined in Selling Guide Announcement SEL-2012-07 and are part of Fannie’s process of reviewing eligibility policies to determine that they are appropriate based on new data and loan performance. ARMs originated in conjunction with community seconds are no longer eligible for a 105 percent combined LTV ratio. But on fixed-rate mortgages used for purchase or limited cashout on two-unit primary residences, the Washington, D.C.-based company is increasing the LTV ratio from 80 percent to 85 percent. Fannie is also eliminating the lower LTV requirements for certain co-op share loans. The same goes for HomeStyle Renovations loans, though they will be capped at 95 percent. Four counties in Hawaii will see LTV ratios rise from 80 percent to 90 percent on fixed-rate loans in excess of $625,500.
The minimum credit score for manually underwritten ARM borrowers is being raised to 640 from 620, though some transactions will require even higher scores. Specific credit score requirements on high-balance loans are being eliminated from DU, and the standard DU minimum credit score will now apply. If at least one borrower on a loan is qualified solely on the basis of nontraditional credit, then the property must be a one-unit primary residence. The loan purpose in such cases is restricted to limited cashout or home purchase. Loans underwritten through DU 9.0 on or after Oct. 20 are subject to the new requirements, while manually underwritten loans with applications dates on or after Oct. 20 will need to be underwritten based on the new requirements. Source: Mortgage Daily