Fannie Mae Updates Selling Guide

Fannie Mae announces New Solutions to Student Loan Debt Repayment

April 25, 2017, Fannie Mae released Announcement SEL-2017-04, describing updates to the Selling Guide on a number of topics, noted below:

  • Student Loan Solutions
  • Project Eligibility Review Waiver for Fannie Mae to Fannie Mae Limited Cash-Out Refinances
  • Properties Listed for Sale in the Previous Six Months
  • PERS Expiration Dates
  • Truncated Asset Account Numbers
  • Flash Settlement for Mortgage-Backed Securities
  • Servicing Execution Tool Bifurcation Option Terms and Conditions
  • Miscellaneous Selling Guide Update

Full Announcement

This article highlights Student Loan Payment Solutions, read the fact sheet.

Student Loan Payment Calculation

Fannie Mae is simplifying the options available to calculate the monthly payment amount for student loans. The resulting policy will be easier for lenders to apply, and may result in a lower qualifying payment for borrowers with student loans.

If a payment amount is provided on the credit report, that amount can be used for qualifying purposes. If the credit report does not identify a payment amount (or reflects $0), the lender can use either 1% of the outstanding student loan balance, or a calculated payment that will fully amortize the loan based on the documented loan repayment terms.

The current Desktop Underwriter® (DU®) message issued when an installment debt on the loan application does not include a monthly payment will be updated in a future release to reflect this new policy. Until then, lenders may disregard the statement in the message specifying the previous policy and follow the requirements in the Selling Guide.  This policy change is effective immediately. 

Debts Paid by Others

Fannie Mae is simplifying its requirements for excluding non-mortgage debts from the debt-to-income ratio. Non-mortgage debts include debt such as installment loans, student loans, and other monthly debts as defined in the Guide.

If the lender obtains documentation that a non-mortgage debt has been satisfactorily paid by another party for the past 12 months, then the debt can be excluded from the debt-to-income ratio. This policy applies regardless of whether the other party is obligated on the debt. (This policy does not apply if the other party is an interested party to the subject transaction, such as the seller or realtor.)

Lenders may implement this flexibility immediately. The DU message on omitted debts will require documentation to support the omission of the debt, but will not reference the documentation requirements specified above as DU is not able to identify if the debt was omitted as a result of this policy.

Student Loan Cash-out Refinance

With this update, Fannie Mae is introducing the student loan cash-out refinance feature, a cost-effective alternative to use existing home equity to pay off student loan debt. This feature provides the opportunity for borrowers to payoff one or more student loans through the refinance transaction, potentially reducing their monthly debt payments. The loan-level price adjustment that applies to cash-out refinance transactions will be waived when all requirements have been met.  Please refer to the Cash-out Refinance Matrix for further information on this rule.

Please refer to the Announcement for important information concerning other topics.

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Anna DeSimone founded Bankers Advisory in 1986 and is a nationally recognized authority in residential mortgage lending. She has received numerous industry awards and has authored more than 40 best practices guides and hundreds of articles.

Comments

Anna, great article. After 25 years of reporting credit to lenders nationwide student loans are a very troublesome issue in many cases. The most recent is the requirement to provide the fully amortized payment. Many loans are in deferment and may have a forgiveness clause or income estimated payment when deferment is over. This makes the calculation very difficult. I hope they stick with the option of using 1% of the loan balance so it will make calculations easier.

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