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Mortgage Crisis Watch Business and legal issues affecting: loan repurchases | mortgage-backed securities | mortgage insurance

New Fannie Mae Guidelines

Verification Of Income Not Required For Refinancing

Fannie Mae recently released a program offering an alternative to documenting income for Refi Plus loans where the change in the amount of the monthly loan payments will not exceed 20 percent. Fannie Mae will now accept verification of liquid financial reserves equal to at least 12 months of the new mortgage payment in lieu of requiring that a least one of the borrowers has a documented source of income.

Fannie Mae’s September 14, 2012 Selling Guide Announcement noted that “the positive impact of Refi Plus and DU Refi Plus continues, enabling borrowers who have demonstrated an acceptable payment history on their existing Fannie Mae mortgage loan to refinance and obtain a lower payment or move to a more stable product or shorter term.”

Fannie Mae thus offered these “enhancements” to the underwriting and documentation policies for Refi Plus (manual only) and DU Refi Plus mortgage loans.

In addition to the alternative to income verification, representations and warranties of the lender will be reduced for loans acquired by Fannie Mae on or after January 1, 2013.

These changes include relieving lenders of their obligation to “repurchase” Refi Plus and DU Refi Plus mortgage loans that are in breach of certain underwriting and eligibility representations and warranties if the borrower was not 30 days delinquent during the 12 months following the acquisition date of the mortgage loans.

In addition, if a new appraisal is obtained, the lender is not required to make any representation or warranty as to the value, marketability or condition of the subject property.

“Flexibility and Efficiency”

Fannie Mae’s Selling Guide Announcement states that the new alternative verification programs are to provide additional “flexibility and efficiency” for lenders in originating these products. Does that sound familiar to those of you that originated mortgage loans prior to the current mortgage crisis?

Fannie has once again set up a framework where verification of income is not required. It will be interesting to see if Fannie attempts to put these loans back to the lenders in the future, relying (as it does today) on tortured after the fact interpretations of their program guidelines.

Moreover, Fannie has tacitly acknowledged that basing a repurchase demand on a faulty appraisal is per se without merit. We think Fannie Mae has seen the light here. It is now time for it, Freddie Mac, and the big aggregators to cease making repurchase demands on the correspondent/originators for the repurchase of legacy loans, which are typically based on similar weak grounds