Major Loosening of High-Balance Conforming Standards; MyCommunity 2.0

By: Jann Swanson •

Fannie Mae is initiating what it is calling an "enhanced affordable lending product it has named the HomeReady mortgage. The new loan is a reconfiguration of its My Community Mortgage (MCM) which it brought on line in 2001 but which has gradually morphed, from an underwriting standpoint, into a more traditional kind of loan.

The company says it has taken MCM and redesigned and enhanced it, targeting the loans to low-to moderate-income borrowers and buyers in designated low-income, minority, and disaster-impacted communities.  The HomeReady mortgage is a standard product available to all Fannie Mae lenders with no special approvals required.

The loan will be available with a general income limit of 80 percent of area median income and is also available for properties in low-income census tracts with no borrower income limits and up to 100 percent of area median income for properties in high minority census tracts or designated disaster areas. 

The announcement for the loan came in a Selling Guide Announcement which also contained updates to rules involving homeownership education and housing counseling, high-balance mortgage loan eligibility, and non-occupant borrower policies in loans underwritten in Desktop Underwriter (DU.)

Fannie Mae outlines a number of criteria for HomeReady mortgages when underwritten through DU.  These include:

  • Removal of first-time buyer requirement for one-unit principal residence loans with 95 to 97 percent loan-to-value (LTV) ratios;
  • For qualifying purposes the following can be included in HomeReady loans: inclusion of non-occupant borrowers, rental income from accessory apartments, and non-borrower household income (with qualifications;)
  • Manufactured housing is eligible when used as a principal residence;
  • HomeStyle Renovation mortgages will be permitted for principal residence transactions;
  • Standard mortgage insurance is required on loans with LTV ratios at or below 90 percent; 25 percent coverage is required for loans with ratios above 90 percent.

Fannie Mae says it has reexamined its home-buyer education and counseling requirements, simplifying them and bringing definitions for the terms "homeownership education" and "housing counseling" in to line with definitions developed by the Department of Housing and Urban Development (HUD).  The Selling Guide will now distinguish between mandatory homeownership education before a loan closing and optional housing counseling provided by a HUD-approved counseling agency.  Some of the changes to the education and counseling requirements are specific to the new HomeReady mortgage loans.

The company has also aligned the eligibility of high-balance mortgage loans with those of its standard eligibility requirements with LTV, combined LTV (CLTV), and high combined LTV (HCLTV) ratios up to a maximum of 95 percent.  Many of the policy overlays that previously applied only to high-balance loans have been removed and a new policy has been implemented requiring all high-balance loans to be underwritten through DU.

Notable changes include:

  • The 5 percent minimum borrower contribution no longer applies. Thus all borrowers will be eligible to use gifts, grants, and Community Seconds to fund down payment and closing costs on one-unit principal residences with LTV, CLTV, and HCLTV ratios higher than 80 percent.
  • Field reviews of property requirements for loans above $625,000 and LTV ratios above 80 percent are no longer required.
  • Two comparable sales outside of the subject condo project are no longer required in appraisals for condo loans;

The company also said that it will not consider the income and liabilities of a non-occupant borrower on a mortgage loan underwritten with DU.  In the past only the credit and assets of such borrowers were considered.  No separate calculation of the debt-to-income (DTI) ratio of the occupying borrower(s) will be required as the calculation will be based on the income and liabilities of all borrowers on the loan.

Details on the HomeReady mortgage and on other changes to the Selling Guide are contained in Selling Guide Announcement SEL-25-15, available on the Fannie Mae website.