Today Fannie Mae released Automated Underwriting (DU) Version 8.0 and these changes are bound to have a big impact 
especially on multi-family houses. Some of the changes included in this release are as follows:
- Minimum FICO score 620 (was 580)
- 2 Unit Owner Occupied Property - maximum LTV 80% for purchase & rate/term refinance (was 90%)
- 2 Unit Owner Occupied Property - maximum LTV 75% for cash out refinance (was 85%)
- 2 Unit Investment Property - maximum LTV 75% for purchase & rate/term refinance (was 80%)
- Unit Investment Property - maximum LTV 70% for cash out refinance (was 75%)
In addition to the eligibility changes listed above, the updated version (DU 8.0) will limit the maximum allowable total expense ratio to 45 percent, with flexibilities offered up to 50 percent for certain loan case files with strong compensating factors.
If current debts exceed the maximum allowable total expense ratio, the loan case file will receive an Ineligible recommendation. DU will no longer return a Refer recommendation on loan case files that would have otherwise received an Approval, but had exceeded the maximum allowable total expense ratio.
All new cases submitted to DU will now be scored with the 8.0 version and the new eligibility will be applied. New cases submitted prior to today will be scored with the current version DU 7.1 and will continue to score as DU 7.1 on subsequent submissions, however, loans using DU version 7.1 must close by February 12, 2010.
I would STRONGLY recommend that if you have run a Borrowers file through DU before today, and received an Approved/Eligible, but the Borrower has not gone under contract yet, that you run it through DU again. I am sure that there will be many Borrowers that received an Approved Eligible under version 7.1, that will no longer receive an Approved/Eligible under version 8. It would be a shame to have a Realtor that you partner with run around trying to find one of their Buyers a house, and the Buyer no longer qualifies.
If you are a Realtor or a Buyer I would again STRONGLY recommend that you contact the Loan Officer or Broker that you are working with and ask them to run your file(s) through DU to make sure that you have not been affected by this change.
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Info about the author:
George Souto is a Loan Officer who can assist you with all your FHA, CHFA, andConventional mortgage needs in Connecticut. George resides in Middlesex County which includes Middletown, Middlefield, Durham, Cromwell, Portland, Higganum, Haddam, East Haddam, Chester, Deep River, and Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com
George - I depend on your blog to keep me updated on the latest changes in the mortgage industry. Thank you for the advice.
George - thanks for the updates. It seems nothing ever stays the same in the mortgage industry, AND it keeps gettiong more difficult.
Jeff
George thanks for the update. This could be disappointment for some hoping to close by year end. So much to keep up with and the public think we are overpaid.....lol
"I would STRONGLY recommend that if you have run a Borrowers file through DU before today, and received an Approved/Eligible, but the Borrower has not gone under contract yet, that you run it through DU again. ."
That advice should be heeded by all loan officers to whom it applies and all borrowers who should alert their loan officer.
I think that there is going to be many candidates for FHA that will be surprised by the new guidelines, that have been fence sitting.
George, thanks for the excellent update. This is worth re-blogging.
George great blog on the DU 8.0 changes and very concise-
It actually amazes me how few people understand what DU actually is. That DU approval is clout, and if a buyer has it, their agent should leverage it. Thanks for the advice on dealing with the changes. The industry is changing before our eyes and we have to get out in front of those changes.
George, Thanks for the "heads up" and thanks for the valuable re-blog opportunity.
Sue
Thanks George for the update. Things are certainly changing these days.
George,
A well written and informative article on the new DU rules. Thank you for sharing your expertise in ways that are easy to follow and understand.
Anyone that hasn't closed yet should rerun it through DU? Or just if they're not under contract yet?
Being updated on mortgage news is not an easy task, following the detailed changes can really have a big effect on borrowers and current owners.
George,
Thanks for the heads up. I have two clients right now who I need to have put through underwriting again to clarify their status.
That's great advise. I normally have a DU before I will show homes. In this case a update is required. Thank you......
Hello George and CONGRATULATIONS on your well deserved feature. You are the go to man on financing! When are you coming to Canada? BTW Love the sign DU change.
Keep in mind that if you have a DU approval prior to December 11 that still will not protect you. If the during the course of the approval process the lender wants DU run again for any number of reasons, you are stuck with the new DU 8.0
George: This will shrink the number of people that can qualify for a loan. That means we all just have fewer prospects.
To me, it also says they believe the losses are still too great with the current guidlelines and they will tweak until the bleeding stops.
To borrow a phrase used in the appraisal industry: Guidelines just took a "haircut"
Hi George:
Thanks for posting this very important information on the new DU rules...
I'll re-blog later this to keep it circulated!
George,in our area the multis are sitting mainly because the rules changed so much for financing and the no money down has them inactive. I would assume that if this is being applied to multis then single family buyers may see some tightening up also. When George speaks, the world listens! ;o))
Thanks for the update George. This means it going to be harder to move condos and we have a glut of them in my market place.
Linda Metallo, Re/max Impact, Lockport, Il. (Chicago)
Getting a loan is tougher all the time! Thanks for keeping us updated on the recent changes.
George - I can always count on you to keep me up to date when it comes to all of these changes. Congratulations on a well deserved feature about these new guidelines.
Hi George -- This is perhaps one of the most important posts I've seen on AR in a long time. This impact could be huge for those communities with a lot of multi-families, we have quite a few communities where I live that this will affect. Very important to know.
Thank you George for providing this information. It is an ever changing environment and we are lucky to have you here to give us the heads up!
George, thanks for the post. This is just another thing that is going to have negative ripple effects in the real estate market in 2010. Not only are homeowners (who badly need to refinance) under water, but those who are getting close may be kept from refinancing to a lower payment due to these changes.
George, Hi how are you?
Good to see you here, giving out such great advice.
Do you think this is going to slow the market down as more buyers will have to get better prepared and save more.
Having a new DU run for those not likely to close by the deadline makes sense especially given the changes in DTI.
George thanks for providing this excellent information!
thanks for good advice ,,, and good job I don't people really realize how much harder it has begun to get some of these loans through
yep. it is getting harder and harder to qualify. notice a pattern? LTV
have a great day
tony
These don't look that different than the automated underwriting standards that my loan officers have told me about for the past few months.
Good post. Things change daily it seems and this is a big change that needs to be heeded.
Qualify buyers.
Ask "are you under contract with a RE Agent?"
Ask "do you have a lender?"
Ask "have you gotten qualified for a loan?"
That's all we need to do.
Those who qualify will buy.
Eventually, either all the excess homes will get rented, OR they'll get sold to owner occupied people.
Gail, thank you. Hopefully future changes will be for the better.
Jeff this one is going to make Conventional Mortgages even more of a challenge than they were before.
Jennifer, unfortunately many do not realize all the work that goes into every transaction.
Lenn, I agree. Better to run our files through the new system right now, than to wait and be surprised later.
Lorraine and Loretta, yes there will be some FHA surprises, but the Fannie and Freddie surprises will continue to be far more. These types of changes do seem to be in our future for a while.
Gabe thank you, and thank you for helping to get the word out.
Darren, Thank you
J. Philip, I agree, DU approvals are crucial , because manual underwrite approvals are very difficult to get these days.
Sue you are very welcome
Richard they certainly are :)
The one thing I don't like is the 2-unit refi options getting cut for current home owners. Sure it is a small segment of the public, but it is sad they get handcuffed like that. Overall, another blow to the eligibility options for buyers.
Judi, just those that are not under contract and do not have a loan in process yet. This should not affect those the have loans in process before this change.
Morgan you are right this will have a big affect on both Buyers and Sellers.
Walter I hope this does not change things for them.
Mark that is a good policy to have.
Al and Peggy when ever I start to feel the need for colder weather I will show up, up there ....... LOL
Paul, my understanding is that any loan submitted before the 12th, that they will continue to be scored under the 7.1 version even if they have to be run through DU again after the 12th. But that would be something good to double check.
Janet I like that saying, I will have to remember that.
Toula, thank you, the more we get the word out the better.
Ed, FHA is still an option for multis, and in Waterbury CHFA is a big option, because the whole town is a targeted area, therefore CHFA/DAP loans should be a big help.
Linda, unfortunately Condo's have been big victims in all this.
Jenny they certainly are.
Donna thank you. I try :)
Chris, FHA will continue to be an option for multis, but who knows how long it will be before they will also begin to tighten things up also.
Stephanie, I will continue to try to do my best to pass on what I know.
Eric, refinances are certainly not an easy option any more, and they continue to make them tougher.
Missy yes I do think that it will slow things down, especially in areas that FHA is not a real option. VA and USDA are still 100% financing options, but those are not available to everyone.
Bryant, I know you have good people that you work with for you financing, and that they will stay on top of the changes for you. We need to know the rules, and what our options are within them more so these days than any other time that I can ever remember before.
Christine, those who have loans in processing should be OK, it is those that have not found a house yet that could have problems with this change.
Bill as always you are very welcome.
Gene unfortunately you are right about that.
Tony yes I have noticed the pattern and now the DTI will also start to become more of a pattern as well.
Aaron, these are a lot different for multi family properties, especially for two family units. The Total Debt to Income Ratio droping to 45% is also huge. Previously you could get a DU Approved/Eligible on a Fannie Mae backed loan with a Total Debt to Income Ratio of 57%
Terrylynn, yes it does. We are going to have to pay very close attention to this one.
John the problem with this change is that many previously qualified Buyers will no longer be qualified under these new changes. The change to the Total Debt to Income Ratio will take a lot of people out of the market.
Steve you are right, and by the way I like the new Christmas get up :)
George ~ Thank you for such an informative post New Fannie Mae Automated Underwriting (DU) Eligibility Changes.
We are the government we are here to help.. AHHHHHH! Why is the government keep trying to improve things. All I see is it trying to stop any housing recovery.
Thanks for the update George. Things are changing more often these days and this will help keep up.
George,
Thank you so much for keeping us aware of the guidelines and how they will affect buyers in the market place! ;-)
George, i have been all over Active Rain, trying to reciprocate all those comments left on my fetured blog and i must have run into about 30 re-blogs of your post!!! Look at how valuable folks deem you and what you have to share! Have a great Holiday George... thanks for all you have been all year round!
Monique, I am glad that you found the information useful.
Todd, you are right these changes will slow down the housing recovery, and will take Buyers out of the market.
Roland, there are more to come and I will try to post about them.
Wendy, many of the people here in the Rain try to do that, and we all learn from one another.
Diane, thank you, but I am just the messenger, it is the information that is of value. But it is always good to hear what you had to say :) :) :)
George, Thanks for the update very informative post!
Reshawna thank you, I just wish it could be better news :)
Thanks for the update and helping to make sure we're all on top of these changes. It can be hard to keep track with so many changes happening so fast. I've been writing about the FHA changes quite a bit as well for my CBS MoneyWatch blog.
http://moneywatch.bnet.com/saving-money/blog/home-equity/shaun-donovan-fha-needs-to-change/1342/?tag=col1;blog-river
Ilyce, the changes have been coming on a regular bases, and that trend will probably continue for a while longer before they are done tightening things up.
George,
All the changes are going to push some people right out of the market... Or as you said, waste someone's time.
Thank you for the post. I am going to re-blog it.
Ann Hayden in Wildwood, MO
George, I knew the changes were coming but I was not sure what they were. Thanks for sharing.
Ann, especially the decrease to a 45% Total Debt to Income Ratio is going to eliminate a lot of Borrowers.
Marchel, well now you know what a few of them are :) :)
Stricter rules....can't decide if it's a good thing or not. It may bring well qualified borrowers/buyers but it may push out the ones who really are responsible and can make their payments faithfully.
Sally in my opinion this is not good, because it is going disqualify a lot of buyers that qualify right now. The way I look at it is, fewer Buyers equals fewer sales and that is not good in a time that we NEED to increase sales. I do not see how this will help turn the economy around.
George,
I heard long time ago that they would change to 640 minimum fico score, I believe that they never approved or or just was a rumor, great info, thx
Ray FHA has not done that, but Investors that buy the loans have put their own risk layers dictating what Credit Scores they will accept. Most of them are at 620, but a few are requiring a 640 or higher.