Fannie Mae and Freddie Mac have made several recent changes to their underwriting guidelines, potentially expanding the customer base on refi products, including the HARP initiative.
The underwriting changes include relief from income verification and document requirements under Freddie’s Relief Refinance program and Fannie’s Refi Plus program, which encompass
In addition, the two will no longer hold lenders responsible for the accuracy of the appraisals on refinancings in terms of representations and warranties.
“They need to get an appraisal, but they don’t have to ‘rep and warrant’ the accuracy or completeness of the appraisal,” said Fannie spokesman Andrew Wilson.
These changes—which went into effect Sept. 14—went relatively unnoticed due to a major announcement at the time by the Federal Housing Finance Agency concerning a new representation and warranty framework for all Fannie and Freddie products, including HARP loans.
In terms of Home Affordable Refinance Program loans, the lender’s buyback risk will expire if the loan has an “acceptable payment history of 12 months,” the FHFA said. The new R&W framework does not go to effect until next year and applies to new loans originated after Dec. 31.
Most of the other changes in underwriting guidelines went into effect immediately.
Under the new refinancing guidelines, GSE lenders only need to verify the borrower’s source of income—not the amount or continuity of the income.
In cases where the refinancing increases the borrower’s payment by 20% or less, the lender has the option of verifying the source of income or the borrower’s assets.
In lieu of verifying the source of income, “Fannie Mae will now allow verification of liquid financial reserves equal to at least 12 months of the new mortgage payment,” according to Fannie SEL-2012-09.
This change should help refinance borrowers that have retired or experienced a reduction income.
