ANN ARBOR, Mich. -- In early May, Fannie Mae announced several key changes to its residential mortgage guidelines that will have a major impact on helping homebuyers and may assist lenders in easing the mortgage crisis, said Gibran Nicholas, chairman of the CMPS Institute (www.cmpsinstitute.org), an organization that certifies mortgage bankers and brokers.
"When Fannie Mae changes their policies and procedures, it has a widespread impact on homeowners," Nicholas told Credit Union Times. "This is because over 60% of U.S. home mortgages are securitized, meaning that they are owned by investors like Fannie Mae and Freddie Mac who issue bonds on the bond market using these mortgages as collateral."
Another bright spot is that Fannie Mae is teaming up with the Self-Help Credit Union in Raleigh, N.C., one of its long-time partners, to help families in hard hit real estate markets get into foreclosed properties through a rent to own program.
"This will stabilize communities by enhancing the options available to renters," Nicholas said.
After tightening their guidelines, Fannie Mae is doing a bit of retrenching now. One revision is that Fannie Mae will allow borrowers to refinance up to 120% of their home value if they are currently paying their mortgages on time. "This is a huge positive development for responsible homeowners who are faithfully making their payments, but simply find themselves in a negative equity situation due to declining real estate values," said Nicholas.
Another change is that Fannie Mae is renewing and expanding its partnership with the state Housing Finance Agencies to provide $10 billion in financing for qualified first-time home buyers. "This is important because it gives first-time home buyers access to more financing options, thereby increasing the amount of eligible buyers in the marketplace," said Nicholas.
Another change is the price paid for new jumbo loans. Fannie Mae will buy new jumbo conforming loans at the same price that it buys other conforming loans throughout the remainder of 2008. "This is an enormous benefit for mortgage borrowers in high-cost areas who have been largely disappointed with the persistently high rates on jumbo loans," said Nicholas. As part of the much touted Economic Stimulus Package of 2008, limits on jumbo mortgages were increased from $417,000 to up to $729,750 in high-cost areas. "The reality of the situation is that these higher loan limits have not really been effective because Fannie Mae has charged higher interest rates and fees on these loans versus traditional conforming loans at or below the $417,000 limit."
The new rules abolish this pricing difference and allow jumbo conforming loans to price exactly the same as traditional conforming loans. "These low interest rates expire at the end of 2008, so now is a perfect time for borrowers in these higher priced markets to buy homes," Nicholas added.
Nicholas said that Fannie Mae reacted a bit too strongly at first by tightening guidelines in keeping with the mortgage crisis and now likely realized it had overreacted a bit. "We see them scaling back on these guidelines now and they are rightfully readjusting. In essence, we think they are saying, We can lighten up a bit. I think that's a good thing, given that getting any meaningful housing legislation out of Congress in an election year is very doubtful."
"I don't think there will be any comprehensive reform of the GSEs or FHA expansion with the jockeying on positions by Congress. That makes it very helpful that Fannie Mae step up to the plate and do what it can to alleviate whatever problems they can," he added.
Fannie Mae also announced that it would no longer require larger down payments in declining market areas, something they said they would do. "I think they saw that bigger down payments in declining markets created more of a challenge, especially in those areas that were already hurting," Nicholas said.