Fannie Mae Announces Updates to Refi Plus and DU Refi Plus
by Michelle Peters
Assistant Vice President & Office Manager
On September 14, 2012 Fannie Mae announced updates to the Refi Plus and DU Refi Plus mortgage loan programs. The scope of this announcement details the enhancements that will help lenders accommodate potential borrowers. All updates included in the announcement were effective immediately; the announcement was made in Fannie Mae’s Selling Guide Announcement SEL-2012-09.
Refi Plus and DU Refi Plus loans assists borrowers with existing Fannie Mae loans to be able to refinance into a loan with a lower payment, shorter term or more stable product. To be eligible for a Refi Plus or DU Refi plus loan, borrowers must have an acceptable payment history with their current Fannie Mae loan. The product enhancements that were announced include:
Reduction in the representations and warranties:
Selling: For all Refi Plus and DU Refi Plus mortgage loans acquired on or after January 1, 2013, lenders will be relieved of the obligation to remedy Refi Plus and DU Refi Plus loans that may have been in breach of certain underwriting and eligibility representations and warranties if the borrower was not 30 days delinquent in the 12 months following acquisition date of the mortgage loan. Complete details are available in Announcement SEL-2012-08, New Lender Selling Representations and Warranties Framework.
Property: In instances where a new appraisal is obtained, the lender will not be required to make any representation or warranty regarding value, marketability or condition of the subject property. Additionally, appraisals that contain a condition rating of C6 and/or a quality rating of Q6 completed “as-is” are deliverable to Fannie Mae and will not be required to be completed “subject-to” repairs. For Refi Plus and DU Refi Plus loans, the lender will not be responsible for the requirements found in the Selling Guide, B4-1.1-01: General Information on Appraisal Requirements (Lender Responsibilities).
Providing an alternative to income verification for Refi Plus loans with payment changes less than or equal to 20%:
If the borrower(s) can provide sufficient verification of 12 months liquid financial reserves for the subject property PITIA, verification of income for the borrower will not be required. Liquid assets for these purposes would include checking, savings, certificates of deposit, money market funds, investments in stocks/bonds/mutual funds and the vested amount in retirement savings accounts.
Reducing Documentation for Income and Assets: For Refi Plus loans with P&I increases greater than 20% and for all DU Refi Plus loans:
1) All income and asset sources must be verified according to the minimum documentation requirements grid that is attached to Announcement SEL-2012-09. For DU Refi Plus loans, the messages reflected in the DU Underwriting Findings may be disregarded; lender may follow the reduced document guidelines in lieu of following DU.
2) Fannie Mae’s standard requirement for age of documents is applicable, requirements regarding the Request for Transcript of Tax Returns IRS Form 4506-T is applicable and standard requirements for verbal verifications of employment also apply.
3) Verification or assessment of borrower(s) history or continuance of income is not required.
4) Large deposits do not need verification.
5) Proof of liquidation of assets is not required, even in the circumstances when those assets would be needed for closing.
Providing an Alternative Qualification Method When Removing a Borrower:
For Refi Plus mortgage loans, if a borrower is being removed from the transaction, qualifying the remaining borrower can be done based on the requirements for Refi Plus loans with a payment increase greater than 20%, regardless of the actual payment change. Requirements in this instance would include maximum debt-to-income ratio of 45%, minimum credit score of 620, and income and asset documentation along with any other applicable conditions. Additionally, for both Refi Plus and DU Refi Plus, when a borrower is being removed it is no longer a requirement that the name be removed from the deed or title to the property. However, all parties with ownership interest in the property must sign the security instrument.
Clarifying Use of Hardest Hit Fund Programs:
Documentation verifying “No Repayment” language in the promissory note (and other documentation) for Housing Finance Agency’s Hardest Hit Fund financing is no longer required. Terms of the financing must be verified and a payment should be included in qualifying if repayment is expected; however if repayment is only required upon sale or default, a payment does not need to be factored.
Removing Requirement for Single-Family Comparable Rent Schedule (Form1007) for Investment Properties:
For Refi Plus and DU Refi Plus loans, the requirement for a Form 1007 is no longer necessary for investment properties using rental income to qualify.
Updates to Eligible Existing Loan Requirements for DU Refi Plus Mortgage Loans
On October 11, 2012, Fannie Mae announced an update regarding the eligibility requirements for DU Refi Plus mortgages with types of credit enhancements or mortgage insurance. This update is effective October 13, 2012 at which point the Desktop Underwriter Underwriting Findings report will have information from an updated DU Refi Plus database that will include existing mortgage loans that have investor-paid mortgage insurance coverage. This update allows for existing loans with investor-paid mortgage insurance to be eligible for DU Refi Plus financing, provided that the Lender is able to work with applicable mortgage insurance company in converting the mortgage insurance to a borrower-paid or lender-paid product. For more information, refer to Fannie Mae’s Selling Guide Announcement SEL-2012-11.
About the Author:
Michelle is Assistant Vice President at Bankers Advisory, Inc. She manages the pre-funding quality control division and oversees the processing staff for post-funding document re-verification, fraud detection, credit reports and review appraisals. 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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