Saturday, March 15, 2008

Where's Fannie?

Rhonda Porter writes:

New Conforming Loan Limit Won't Help Refi's w/2nds...FHA May Save the Day

Fannie Mae's underwriting guidelines for the temporary conforming loan limits have been released and it looks like the new loan amounts are not going to be as helpful as many had hoped. The new guidelines for loan amounts between $417,001 - $567,500 in King, Snohomish and Pierce Counties are far more strict.

The biggest whammy is that if you were hoping to combine your first and second mortgage (or heloc) into one new conforming-jumbo mortgage, you're out of luck. Fannie is not allowing any "cash out" refinances. This means that even if you were just paying off the two mortgages and not receiving a nickle back at closing--it's not going to fly.

You must have a minimum of 660 credit scores for a fixed rate purchase for a LTV of 80% or less for a purchase using a fixed or adjustable rate.

Limited cash out refinances are allowed up to 75% loan to value with a minimum 660 credit score. Limited cash-out means that you are allowed to roll in the closing costs to the refinance and receive no more than $2000 cash back at closing (no second mortgages/helocs can be included in the refinance).

BTW, Rhonda's blog is one of the most useful tools I know for understanding what is really going on in the mortgage market. And if all originators were as well informed as Rhonda, we would almost certainly not be in this current mess.

My justification for the GSE subsidy has long been that it allows the institutions to provide liquidity to mortgages when it is drying up in other credit markets. In fact, I have always thought this role has been much more important than any role "encouraging homeowing" or "affordable housing." My interpretation of the evidence to this point is that GSEs have done a good job of liquidity provision, but have had a marginal impact on ownership and a not particularly large impact on affordability.

The underwriting policy that forbids refinancing of second and HELOCs, even when the total LTV is below 80 percent, means that Fannie is backing away from its mission to provide liquidity, just when we need it to embrace that mission most.

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