Fannie Mae is tightening the underwriting standards for second houses and funding properties, the federal government sponsored entity mentioned in a letter to sellers on Wednesday.
“Latest amendments to our senior preferred stock purchase agreement with Treasury impose further danger standards on the loans we purchase,” the GSE mentioned in a letter. “A kind of restrictions is a 7% restrict on our acquisition of single-family mortgage loans secured by second residence and funding properties.”
Fannie Mae mentioned that the amendment has prompted modifications in its eligibility insurance policies. All second houses should be underwritten with Desktop Underwriter, obtain an approve/eligible suggestion and be delivered as a DU mortgage, Fannie Mae mentioned.
“The above insurance policies apply to all lenders and embrace loans delivered underneath negotiated phrases (resembling variances or particular necessities). The one exception that will probably be permitted for second residence and funding properties loans is for prime LTV refinance loans which can be manually underwritten in accordance with the Various Qualification Path and delivered with Special Feature Code 840.“
The insurance policies will take impact for loans submitted to Fannie’s mortgage supply system on or after April 1, and for loans delivered into MBS swimming pools with subject dates on or after April 1.
“As a consequence of our must adjust to these restrictions within the Treasury settlement, we will probably be monitoring deliveries of second residence and investor loans on a lender-level foundation, and will probably be working with lenders which have extreme supply quantity of a majority of these loans,” Fannie mentioned in its letter to sellers.
Fannie additionally mentioned its promoting information and eligibility matrix can be up to date in April to replicate the modifications. The corporate famous that it would additional replace negotiated phrases to limit the danger traits for non-DU buy and refinance loans.
The GSEs have had an eventful 2021. Though the Trump administration confirmed that it wouldn’t take away Fannie and Freddie from conservatorship, the Treasury Division did enable the GSEs to retain extra earnings.
In 2019, the Treasury began allowing the GSEs to retain a mixed $45 billion in capital – $25 billion for Fannie Mae and $20 billion for Freddie Mac. With out a rise to the capital the GSEs are capable of retain, they might each quickly be sweeping all earnings again to the Treasury.
The brand new Treasury settlement permits for an mixture of about $283 billion in GSE capital retention, a transfer the GSEs applauded. Fannie Mae’s full 12 months internet revenues elevated 16% to $25.three billion in 2020, largely resulting from report acquisition volumes. The GSE’s estimated complete capital requirement underneath the brand new rule would have been roughly $185 billion, together with $135 billion in frequent fairness tier one capital.
Fannie and Freddie each tightened underwriting requirements in response to the coronavirus pandemic.