Fannie Mae Introduces New Policies on Lender Incentives and Flood Insurance
by: Michelle Peters
On January 29, 2013 Fannie Mae announced two new policies. The first new policy is in regards to Lender Incentives for Borrower and the second new policy is in regards to Private Flood Insurance Policies. The scope of this announcement addresses lender inquiries regarding allowable incentives for borrowers to refinance their current mortgage loans and addresses updated allowances for flood insurance policies.
Lender Incentives for Borrowers:
Lenders will now be able to offer incentives that encourage DU Refi Plus™ and Refi Plus™ transactions as well as additional incentives for all other transaction types.
Pay down of Existing Mortgage Balance for Eligible Refinance Transactions:
Allowable incentives for DU Refi Plus and Refi Plus transactions would be conducted in the form of a payment that pays down a portion of the mortgage being refinanced. The parameters of this type of incentive are that the incentive must not exceed $2,000, no repayment of incentive will be required and incentive payment must be reflected on the HUD-1 Settlement Statement as a lender credit.
Cash or Cash-like Incentives for all Transaction Types:
It is allowable for lenders to provided borrowers with a cash or cash-like incentive, such as a gift card, that would not need to be reflected on the HUD-1 Settlement Statement as long as there was not any repayment required and the incentive does not exceed $500.
These incentives would not be considered an interested party contribution for the refinance transactions (IPC) and would not need to be factored into the IPC limit.
Regarding the cash or cash-like incentives, for purchase transactions, the lender is not typically a party to the sales transaction and therefore the incentives would not be considered IPC’s.
Also, for all transactions, the incentive is not considered cash to the borrower and would not need to be included in the “cash back to borrower at closing” calculation.
The announcement notes that lenders must establish their own procedures that will ensure compliance with the guideline put forth within the new policy. This new policy takes effect immediately.
Private Flood Insurance Policies:
Effective immediately, the Flood Insurance Coverage Requirements found in Fannie Mae Seller Guide B7-3-07 will be amended to reflect the acceptance of flood insurance coverage from private insurers as alternative to the coverage provided by the National Flood Insurance Program (NFIP). The Biggert-Waters Flood Insurance Reform Act of 2012 has extended the NFIP’s authority through September 30, 2017 however the NFIP coverage will not be the only option allowed to homeowners with properties located in flood zones. If private insurance coverage is obtained, the policy must meet be equal to that provided with and NFIP policy and must meet Fannie Mae’s rating requirements for insurance underwriters as described in Seller Guide B7-2-01. All other requirements of flood insurance regarding property location, coverage amounts and maximum deductibles will remain unchanged.
About the Author:
Michelle is Assistant Vice President at Bankers Advisory and Manager of the Quality Control verifications processing department and pre-funding audit services. She can be reached at michelle@bankersadvisory.com
Michelle oversees the mortgage information security, vendor management, and pre-funding services, and manages the QC processing department. She received her associate's degree at the New England College of Finance and is a BA candidate at Bentley University.
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