Fannie Mae Updates Selling Guide
On February 27, 2018, Fannie Mae updated its Selling Guide. The updates affect the following areas:
HomeStyle® Renovation
HomeStyle® Energy
Business Continuity and Disaster Recovery
Age of Document Requirements for Loans Impacted by a Disaster
Compliance with Laws and Responsible Lending
Miscellaneous updates were also included. Fannie Mae’s complete bulletin is available: Here
Summarized below are the changes affecting HomeStyle Renovation Mortgages and seller/servicer Business Continuity and Disaster Recovery requirements.
Changes affecting HomeStyle Renovation mortgages
HomeStyle Renovation changes impacting Desktop Underwriter (DU) will apply to casefiles submitted on or after the weekend of March 17, 2018. New requirements for recourse removal will apply to loans delivered to Fannie Mae on or after June 1, 2018. The expansion of representation and warranty relief is applicable to all HomeStyle Renovation loans including those previously delivered. Lenders must be in compliance with the HomeStyle Renovation policy changes by September 1, 2018, but may implement the changes immediately.
The updates to the HomeStyle Renovation mortgage include:
- Maximum allowable LTV, CLTV, and HCLTV ratios increased to 97% for fixed-rate mortgage for one-unit, principal residence, purchase, and limited cash-out refinance transactions underwritten through DU.
- Manufactured homes are now eligible provided the improvements do not require structural changes. The current LTV ratio requirements in place will continue to apply and the total funds for renovation are limited to the lesser of 50% of the “as completed” appraised value or $50,000.
- Limit on eligible renovation funds for a purchase transaction increased to 75% of the lesser of acquisitions plus renovation costs or the “as-completed” appraised value.
- Limit on eligible renovation funds for a refinance is up to 75% of the “as-completed” appraised value.
- Requirement that the renovation must add value to the property is removed.
- Funds may be used to construct accessory units on the subject property provided the unit complies with local zoning requirements.
- Up to 50% of the total up-front material costs may be released at the beginning of the project for the purposes of acquiring materials that are identified in the project estimate. A portion of this 50% may be used to pay expenses associated with architect fees, design, and permits.
- Clarification that licensed contractors or subcontractors must be used where licensing is required per state or local regulation for the specific trade or type of renovation being completed.
- Inspections must occur before escrow draws are made to ensure that work is being completed in accordance with plans and specifications.
- Lenders may increase the contingency reserve up to 15% if a larger reserve is needed.
- Loans delivered before renovation is complete will be eligible for future representation and warrant relief. To be eligible for relief, the renovation must be complete and recourse removed.
- Requirements to remove recourse has been updated to include a borrower payment history component.
- Appraisal Update and/or Completion Report (Form 1004D) is required to document the completion of renovation work, and must be submitted when requesting removal of recourse.
- The HomeStyle Completion Certificate (Form 1036) has been retired.
- Requirements have been added if the construction cannot be completed within 12 months from delivery or the improvements are not completed as planned.
- Servicing transfers are restricted until the renovation is complete to ensure escrows and completion of the improvements are appropriately managed.
Clarification of expectations related to Business Continuity and Disaster Recovery
The update defines “business continuity procedures” as follows: plans to continue operations if adverse conditions occur, such as a storm, a fire, or a crime. The plan must include moving operations or recovering operations in another location if a disaster occurs at a worksite or data center.
“Disaster recovery” is defined as follows: a documented process or set of procedures to recover and protect a business information technology infrastructure in the event of a disaster.
By September 1, 2018, all sellers/servicers are required to have the following in place:
- business continuity procedures that identify critical function and resources required to continue operations in the event of a business disruption or disaster, and include alternate processing facilities
- disaster recovery procedures that identify critical functions and resources required to continue operations in the event of a business disruption or disaster, provide for off-site retention of critical systems and data file resources, and include alternate network and telecommunication capability
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