REFI & DU REFI PLUS (Fannie Mae Bulletin 11/15/11)
Program Extension
The HARP program has been extended. Accordingly, lenders will now be able to originate Refi Plus and DU Refi Plus mortgage loans provided the note date is on or before December 31, 2013.
Maximum LTV Ratios and Eligible Products for Refi Plus
Fannie Mae is removing the maximum LTV ratio limit for Refi Plus mortgage loans secured by fixed-rate mortgages with terms up to 30 years. This includes loans with terms of 15 years, which were previously restricted to a maximum LTV ratio of 105%. There continue to be no limits on the CLTV or HCLTV ratios.
The maximum LTV ratio limits for all occupancy and property types are:
* no maximum for fixed-rate mortgages with terms up to 30 years,
*105% for fixed-rate loans with terms greater than 30 years up to 40 years, and
*105% for ARMs with initial fixed periods greater than or equal to five years and terms up to 40 years (as permitted by the ARM plan).
Effective Date
The expansion of the LTV ratio limits is effective for Refi Plus mortgage loans with application dates on or after December 1, 2011.
DU Implementation of LTV Expansion
The changes to the LTV ratio limits described above will be implemented in DU in March 2012. Until such time as DU is updated, DU loan casefiles that receive an Ineligible recommendation due to an LTV ratio above 125% will not be eligible for delivery.
Changes to Underwriting Requirements for Refi Plus
A number of changes are being made to the manual underwriting requirements for Refi Plus, including:
Mortgage payment history requirements: The lender must determine that the borrower has not had any mortgage delinquencies on the existing mortgage in the most recent six month period, and no more than one 30-day delinquency in months 7 – 12. This is a change from the existing mortgage delinquency policy, which varies based on whether the borrower’s payment is increasing or decreasing.
Requalification requirements for large payment increases: A new policy is being introduced that requires the borrower to be requalified for the new loan if there is a large payment increase. The following requirements must be met when the principal and interest payment increases by more than 20% of the current contractually obligated payment under the note:
*minimum representative credit score of 620;
*maximum DTI ratio of 45%;
*verification of income sources and amounts in accordance with the Selling Guide, Chapter B3-3 Income Assessment; and
*verification of assets to close if the borrower is required to bring funds to closing
In the event that the note provides for more than one payment option, the lender must use the lowest payment option to determine whether the increase exceeds 20%. If the borrower’s payment is increasing by 20% or less, the standard Refi Plus guidelines continue to apply.
Removal of bankruptcy and foreclosure policy: Fannie Mae is removing the requirement that the borrower (on the new loan) meet the standard waiting period and re-establishment of credit criteria in the Selling Guide following a bankruptcy or foreclosure. The requirement that the original loan must have met the bankruptcy and foreclosure policies in effect at the time the loan was originated is also being removed.
Borrower benefit requirement: To be eligible for Refi Plus and DU Refi Plus, the borrower must receive a benefit in the form of either a reduced monthly mortgage payment (principal and interest) or a more stable product, such as a move to a fixed-rate mortgage from an ARM. Fannie Mae is updating the borrower benefit criteria to also include a reduction in the interest rate or a reduction in the loan amortization term as eligible borrower benefits.
Effective Date
The changes to the Refi Plus underwriting requirements are effective for mortgage loans with application dates on or after December 1, 2011.
Loan-Level Price Adjustments for Refi Plus and DU Refi Plus
Fannie Mae is significantly reducing the maximum amount of loan-level price adjustments (LLPAs) that apply to “HARP” mortgage loans – loans secured by principal residences with LTV ratios greater than 80%. The following changes apply:
*The cap applicable to the sum of the LLPAs and the Adverse Market Delivery Charge (AMDC) on HARP mortgage loans with amortization terms less than or equal to 20 years is being reduced to 0.00%. As a result, all delivery fees are effectively eliminated for this category of loans.
*The cap applicable to the sum of the LLPAs and the AMDC on HARP mortgage loans with amortization terms greater than 20 years is reduced to 0.75%.
*LTV ratio ranges in the tables have been updated to reflect the higher LTV ratios that will now be permitted.
Effective Dates
The pricing changes are effective for all Refi Plus and DU Refi Plus whole loans purchased on or after January 3, 2012, and for mortgage loans delivered into MBS with issue dates on or after January 1, 2012.
Clarification of Lender Representations and Warranties
One of the important components of Refi Plus and DU Refi Plus is the waiver of certain representations and warranties that lenders commit to in the origination of these types of mortgage loans. The Selling Guide currently describes the representations and warranties that apply to the original loan being refinanced as well as the new loan being originated.
With this Announcement, Fannie Mae is providing further clarification on certain aspects of the lender’s representations and warranties on the original loan for Refi Plus, including those related to project eligibility, fraud, Fannie Mae’s Charter, and compliance with laws.
Effective Date
The changes to the lender representations and warranties are effective for all Refi Plus mortgage loans with application dates on or after December 1, 2011. (Note: The DU Refi Plus representations and warranties have not changed.)
All data in the loan casefile is complete, accurate, and not fraudulent.
The lender follows the instructions in the DU Underwriting Findings Report regarding income, employment, asset, and fieldwork documentation.
The lender complies with all other requirements documented in the Selling Guide, A2-2.1-04, Limited Waiver of Contractual Warranties for Mortgages Submitted to DU.
When a lender exercises a DU Refi Plus property fieldwork waiver, Fannie Mae accepts the property value estimate submitted to DU as the market value for the subject property, and the lender is not required to make any representation or warranty as to value, marketability, or condition of the subject property.
If the lender obtains an appraisal for the subject property, the lender is responsible for the standard representations and warranties related to the value, marketability, and condition of the property as reflected in the property valuation used to support the refinance transaction.
The lender is not responsible for the standard representations and warranties related to project eligibility, with the exception that the lender must represent and warrant that the property is not in a condo or co-op hotel or motel.
Paul Wickstrom
