Fannie Mae unveiled a host of changes that impact minimum credit scores and mortgage insurance. The updates are being made in conjunction with the implementation of the latest version of Desktop Underwriter.
Desktop Underwriter Version 8.0 will be implemented the weekend of Dec. 12 by the Washington, D.C.-based company, according to selling guide Announcement 09-29 issued yesterday. (read 8.0 notes and frequently asked questions)
Fannie said it is raising the minimum credit score for all DU underwritten loans to 620, while manually underwritten programs will be the higher of 620 or 40 points less than the program requires under DU. Loans that vary from the master agreement and mortgages insured or guaranteed by the government will also require a minimum score of 620.
“Exceptions to the minimum credit score requirement are limited to mortgage loans that are manually underwritten with nontraditional credit and those originated in accordance with Refi Plus or DU Refi Plus,” the announcement stated.
The update, which is effective on applications taken on or after Nov. 1, is one of several in a move to align manual underwriting guidelines with DU Version 8.0. Delivery or purchase under DU 7.0 and 7.1 must occur by April 30, 2010.
Fannie said it is eliminating its reduced and lower-cost mortgage insurance options as well as its lower-cost option for flexible mortgages. In addition, higher coverage requirements for manufactured homes will no longer apply.
But lower mortgage insurance coverage options are being broadly expanded from just 20-year fixed-rate mortgages and MyCommunityMortgage loans to other transactions. The option is available for both manually underwritten loans and DU casefiles Version 7.0, 7.1 and 8.0 loans. (view page 4 and 5 of full table of new coverage requirements)
Fannie noted that net loan-to-value is used determine the level of mortgage insurance coverage, while gross LTVs — which include financed premiums — is used in the determination of Fannie eligibility and loan-level price adjustments.
Flexible mortgages with the lower-cost mortgage insurance option on DU Version 7.0 and 7.1 must be delivered or purchased by Dec. 31, the announcement indicated.
The secondary lender is eliminating the restriction on split premium financing, which results in a portion of the mortgage insurance premium being financed in the loan and the rest paid monthly. Split or single-premium financed mortgage insurance will now be permitted for any eligible mortgage insurance coverage level.
In addition, financed mortgage insurance will be permitted on DU loans with expanded approval but won’t be allowed on cashout transactions, investment properties or two- to four-unit properties.
The mortgage insurance changes will be implemented with DU 8.0 the weekend of Dec. 12.
Delivery of loans originated under the updated guidelines can begin on Jan. 1, 2010.
Another change was the elimination of the bi-weekly loan. Fannie cited lack of demand and increased operational costs as the reason the program was retired. The bi-weekly program will also be eliminated on applications taken the weekend of Dec. 12, while delivery must or purchase must occur by April 30.
