Fannie Mae is scheduled to implement changes to its Desktop Underwriter (DU) system on Nov. 16 that will make it harder for some borrowers to qualify.
These include tougher debt calculations for adjustable-rate loans; a complete removal of interest-only options; a maximum loan term of 30 years (instead of 40); and an increase in the minimum down payment from 3% to 5% of the loan balance.
While the increased down payment could deter some buyers, Fannie Mae’s program still has advantages over that of the Federal Housing Administration (FHA), in that it does not require upfront mortgage insurance costs and offers lower private mortgage insurance costs.
To offset recent losses and shore up its reserves, the FHA recently raised its monthly and upfront fees and also made borrowers’ monthly mortgage insurance premium effective for the life of most loans (e.g., until the borrower reaches 100% loan-to-value), making the FHA a less desirable alternative. However, it should be noted that the cost of private mortgage insurance for a Fannie Mae loan is contingent upon a borrower’s credit score.
DU will also be updated to give lenders greater flexibility in underwriting and approving borrowers with a previous pre-foreclosure sale or short sale, Fannie Mae reports. Beginning
Nov. 16, DU will include an option that allows lenders to instruct the system to disregard foreclosure information received on a credit report if there is also a pre-foreclosure sale noted on the same account or tradeline.
This change is designed to assist lenders and borrowers in managing inconsistent, incomplete and conflicting data that appears on the borrower’s credit report.