How Fannie Mae Has Changed

Fannie Mae has always stated that they are all about promoting home ownership. But what I find strange is that for a company that is wanting to raise it's cap to be able to invest in more mortgages, they are certainly tightening the reins on their products.

Fannie Mae has touted the Home Stay initiative, even in statements to Congress. They claim that they have written 40,000 ARMs into prime loans using this program.

Fannie provides this information regarding the Home Stay Initiative

Point one discusses EA loans. EA stands for, "Expanded Approval". These loans are approvable loans, with higher interest rates. So a borrower may receive an Approve (best rate) or any of the three EA levels (each level higher means a higher rate) and still get the loan.

The second point discusses the Flex Products which allow higher loan to value purchases (low to no down payment) and what is called limited cash out refinance loans (balance of mortgage owed plus closing costs). The key is that they will continue to offer these loans to borrowers with good credit.

Now here is where it gets tricky. As of October 22, Fannie discontinued offering EA level II and III on 100% LTV refinances and purchases. And discontinued EA III pricing on 97% LTV loans. See a slight contradiction here? They say they want to help, while at the same time, cut the loan offerings to the very people that need it most.

Want a real life example? I had a member come in Friday and reapply with me. He had put an application in with me in April and was approved at 100% financing at an EA level III. He did not have bad credit, he had a limited history and his debt to income ratio was in the low 50's. He wasn't the best borrower in the world, but he really just didn't have the history to give a better rate to at that time. His pre-approval had expired and had finally found a home he was interested in purchasing. We did the application again.

He had continued paying his one credit line on time, so his credit score had improved by 20 points. And the job he was at, his pay was based on time at the job. He had just started in April as an apprentice. He had graduated and now made $6 per hour more than what he did six months ago. His debt to income ratio was now in the low 30's.

But when I ran the loan through, the findings came back as an EA-II loan, which for 100% financing was now ineligible for delivery to Fannie Mae. Let me rephrase this, a person who was approved 6 months ago and now had a better credit score and income, was now being denied.

He was shocked. I was embarrassed to have to give him the news. My underwriters wouldn't listen to my requests. I was given the answer, have him put 3% down and we can do the loan. My member didn't have 3% to put down or able to get a gift. He was shocked. I was embarrassed to have to give him the news.