Next month the Federal National Mortgage Association (FNMA), commonly known as Fannie Mae, will be making some critical changes to their automated Desktop Underwriting system (DU). These changes may impact buyers who could be approved today but will have challenges being approved for financing once these changes take effect.

Here are some of the changes that will take place as of December 12, 2009:

• Fannie Mae will no longer approve ratios exceeding 45%, unless the borrower has very strong assets and exceptional credit scores. They will not approve a debt to income ratio over 50%.
• A minimum credit score of 620 will be required.
• A minimum of 2 months reserves will be required on owner occupied purchases.
• A minimum of 6 months reserves will be required on investment purchases.
• Borrowers using stocks, bonds, or mutual funds as assets for reserves will be able to include up to 70% of their current value.
• Retirement funds will only be counted at 60% of value.
• Credit reports will have to be less than 90 days old on an existing home purchase. This will be important for anyone with an extended escrow, such as a lengthy short-sale purchase.

Recently, a home we have listed for sale ALSO popped up as “for rent” on Craigslist; offered for rent by
someone neither the owners or ourselves have ever heard of!!

The scam is they give you a story about how they were recently transferred, and need to rent the home out
quickly and for below market rent to someone who will take good care of it for them.  Since they’re
already “gone”, you have to send them a rental application (and possibly mail them a deposit check) over
the internet.  If you send them a check, you’ll never see or hear from them again.  If you don’t mail a
check, they still benefit from having your name, address, social security number, date of birth, driver’s
license number, etc.  That information is on all standard rental applications.  Plenty of information for
identity theft, opening credit cards in your name, etc.

So, before renting ANY home, make sure you meet the owner AT THE HOME.  This will help eliminate the
chance of your getting scammed out of your money or your identity.

Conforming loan limits for high-cost areas of the United States will remain at $729,750 through the end of 2010
following action in the House and Senate this week to extend the ability of Fannie Mae, Freddie Mac and the
Federal Housing Administration to make and purchase those bigger loans.

The higher limits were set to expire Dec. 31. The extension removes some year-end uncertainty for mortgage
companies, which had already been preparing for lower limits. Without the new law, the high-cost loan limit
would have fallen back to $625,500.

“Given the lack of a private secondary mortgage market, FHA, Fannie Mae and Freddie Mac are pretty much the
only game in town,” said Robert Story Jr., chairman of the Mortgage Bankers Association. “Extending the
current loan limits through 2010 will allow more loans to qualify for these important programs and will
help keep mortgage credit more accessible and affordable for qualified borrowers.”

“As we try to maintain the momentum of the housing recovery, providing affordable financing for qualified
borrowers is critical. Extending the loan limits, along with other initiatives such as extending and
expanding the home-buyer tax credit, will help restore stability to the housing and mortgage markets,” he said.

Are you considering a refinancing of your current mortgage(s)?  Maybe to lower your interest rate, to switch from an adjustable rate mortgage to a fixed rate, or maybe to consolidate a first and second mortgage into one loan?

Given today’s low interest rates, these could be prudent financial moves.  However, there is one potential pitfall which should give pause for thought.  Legally, there is a difference between a “purchase money loan” and a “refinanced” loan.

A purchase money loan is a loan (or loans) that is put into place at the time you are making the purchase of a property.  For an owner occupied property, if you have financial difficulty at some time in the future (as many people are having today), and your home ends up in foreclosure, the only recourse the lender(s) has is to foreclose, sell the home, and get back as much of their loan as they can.  The lender can NOT go after your other assets to make up their loss.

Once you have refinanced, and no longer have the loan(s) that were put in place at the time of purchase, the lenders DO have recourse.  They’ll have an unsecured lien against your name.  With this, they can attach your future wages, and come after you to make up every penny they have lost on that loan.

Disclosure: we (Robert and Gary) are not accountants or tax experts, but this is our understanding of the law.  If anyone has a different point of view, we encourage your writing on this blog and sharing that viewpoint with others.

Gary Shapiro and Robert Gosalvez

Intero Real Estate Services