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Fannie Mae, which purchases a great majority of the conventional home mortgages currently underwritten in the US, made recent changes in their qualifying guidelines which are the result of “a comprehensive review of current underwriting and eligibility policies with a specific focus on current market conditions.” These include “increased unemployment, stock market fluctuations, and heightened concern about fraud in the mortgage lending process,” in the policy announcement 9-19 from Fannie Mae’s selling guide.

The maximum age of credit documents is reduced for both existing construction and new construction, 30 days reduction for existing (120 to 90) and 60 days reduction for new construction (180 to 120). 

Additionally, Fannie is making dramatic changes in its guidelines for construction financing, especially construction-to-permanent loan programs.  Fannie’s announcement claims this is due to fears of change in a borrower’s financial circumstances during the construction period when utilizing a single-closing loan program.  The most significant change is the lower LTV (loan-to-value) requirements.  Now, if upon the completion of construction, the borrower’s total loan-to-value is not 70% or less, the borrower will be required to go through underwriting and closing a second time.  This change alone can cost the borrower thousands in additional closing expenses.

Lending in the US is already limited to those able to provide extensive documentation as to their income, assets and credit history.  The harder it is for qualified, A+ credit customers to get financing, the longer the economic recovery will take. 

Next, additional changes from Fannie Mae.