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For the second time in 10 weeks, Fannie Mae is toughening its mortgage guidelines again.  Again.

According to an internal Fannie Mae document, a review of the group's current "risk appetite, eligibility requirements, mortgage insurance options, and pricing" spawned changes spanning credit scoring, income requirements, loan-level pricing adjustments.

The Fannie Mae guideline changes are summarized, in part, below:

• Minimum credit score requirement raised to 620
• Total debt-to-income levels may not exceed 45 percent, except by exception
• Loan-level pricing adjustments for loans with "minimum" PMI coverage

It's the loan-level pricing adjustment part that's most interesting.

Loan-level pricing adjustments are specific fees assessed for specific risks. Based on the current lender guidelines, if your credit score is low, you'll pay an extra fee to Fannie for your mortgage; if you're doing a cash-out refinance, you'll pay an extra fee to Fannie for your mortgage; if you live in a condo and have little equity, you'll pay an extra fee to Fannie for your mortgage.

LLPAs were first introduced in April 2008. Fannie Mae has upped them nine times since.

There's lot of ways to trigger the fees.

If the concept of risk-based fees seems weird, think of LLPAs like auto insurance. Base rates are the same based on product, but the driver of a sports car will pay for insurance versus, say, the driver of a minivan.  Higher risk to the insurer means higher premiums to the owner.

Mortgages work the same way.

At least with its latest LLPA revision, Fannie Mae gets a tiny bit democratic.  It gives its mortgage-insurance carrying homeowners a choice.

1. Pay for higher levels insurance coverage month-after-month, or
2. Pay for the "old" insurance coverage plus a one-time fee, due at  closing

For every borrower, there is a clear-cut, cost-effective solution but, regardless, in both cases, the costs to finance through Fannie Mae are going to be higher.

Fannie Mae set December 11, 2009 as its "effective date" for the changes.  All mortgage approvals after that date will be subject to the new minimum FICOs, expense ratios, and LLPAs.

Better to get a good rate today than to be ineligible for a great rate tomorrow.  If I can help you plan for an upcoming mortgage, call .

Mortgage approvals are getting more difficult.  Again.

After reviewing recent unemployment data and market fluctuations, plus patterns of mortgage fraud, Fannie Mae is making major mortgage guideline changes for the first time in more than 6 months.

The changes are broad, impacting 15 separate areas of the mortgage approval process as detailed in Fannie Mae's official announcement.

Across-the-Board Guideline Changes:

• Credit, income and asset documentation can't be more than 90 days old. The former guidelines allowed for 120 days.
• Lenders must compare actual federal tax returns from the IRS to a borrower's supplied income documentation. Previously, this review step was at the lender's discretion.
• "Tip" income must be verified.
• Trailing secondary wage earning is now prohibited. This means that P&G employees relocating to Cincinnati can't use a spouse's "expected" Cincinnati income until that spouse actually has a job.
• Stocks, bonds and mutual funds get assigned 70% of current market value. Formerly, this was 100%.
• Retirement assets get assigned 60% of current market value. Formerly, this was 70%.

By themselves, these bullet points would kick more than a handful of home loans out of the underwriting queue but of all the changes Fannie Mae is making, the most impactful one may new its new restrictions on mortgages for 2-unit properties.

Until now, Fannie Mae had treated duplex homes as somewhat "safe", granting them the same liberal underwriting policies as for a single-family home.  Because of defaults and fraud prevention efforts, though, Fannie Mae decided to make getting approved for a 2-unit property decidedly more difficult.

Minimum credit scores are higher and maximum loan-to-values are lower.

When your 2-unit is your Primary Residence:

• Purchase: Maximum LTV lowered to 80%; 640 minimum FICO.
• Rate-and-Term Refinance: Maximum LTV lowered to 80%; 640 minimum FICO.
• Cash Out Refinance: Maximum LTV lowered to 75%; 680 minimum FICO.

When your 2-Unit is an Investment Property

• Purchase: Maximum LTV lowered to 75%; 660 minimum FICO.
• Rate-and-Term Refinance: Maximum LTV lowered to 75%; 660 minimum FICO.
• Cash Out Refinance: Maximum LTV lowered to 70%; 680 minimum FICO.

Overall, Fannie Mae's new 2-unit guidelines restrict loan-to-value limits by as much as 15 percent and raise minimum FICOs by up to 40 points -- 2 major shifts in policy.  Because of it, going forward, fewer 2-unit mortgage applicants will qualify for mortgages and that should slow both purchase and refinance activity in the 2-unit market until the market returns to balance.

It's especially tough for owners of more than 4 financed properties.

Fannie Mae has said September 1, 2009, is the "effective date" for its underwriting changes so not every lender is underwriting to the new rules just yet.  It's expected that by August 1, all of them well.

Therefore, if you know that you have a 2-unit home to refinance, or that you need your stock and/or retirement portfolio to qualify for your mortgage, consider moving up your timeframe to the next two weeks.   Lenders often implement new guidelines without advance warning and that could leave you in the cold.

Better to get a good rate today than to be ineligible for a great rate tomorrow.  If I can help you plan for an upcoming mortgage, call or email anytime.

In February 2009, Fannie Mae rescinded a rule that kept real estate investors from financing more than 4 properties at a time.  The move increased the maximum properties financed limit to 10, giving investors a ticket to the nation's REO and Foreclosure Party.

In its widely-celebrated official announcement, Fannie Mae said upping the financed-property limit could stabilize housing nationwide. 

"Experienced investors play a key role in the housing recovery", it noted.

3 months later, however, the 5-to-10 Properties Financed program is proving to be a bust.  Despite Fannie Mae's explicit endorsement of  investor loans -- mortgage lenders are choosing to keep the investor-friendly program off their books.

Well, most of them anyway. 

Although the 5-to-10 Financed Properties program is approved by Fannie Maelenders, only a select crowd of mortgage lenders are making it available.  This is a cause for consternation among the real estate investor set.  Long-standing relationships don't seem to count for much when a bank won't do investor loans as a matter of policy.

And it's silly, really.  Fannie Mae is agreeing to buy the loans; the banks should be willing to do them. 

Fannie Mae's guidelines are pretty clear.  The national group will purchase and guarantee investor mortgages where the applicant meets the following criteria:

• Owns between 5-10 residential properties with financing attached
• Makes a 25 percent downpayment on the property; 30 percent for 2-4 unit
• Minimum credit score of 720
• No mortgage lates within the last 12 months on any mortgage
• No bankruptcies or foreclosures in the last 7 years
• 2 years of tax returns showing rental income from all rental properties
• 6 months of PITI reserves on each of the financed properties

And then, as a last step to reduce fraud, Fannie Mae's 10-financed property program requires applicants to sign a 4506-T -- a form giving lenders permission to verify the submitted-with-the-loan tax returns against the official, IRS-filed version of the same.

So, why don't all bank participate in the 5-to-10 Properties Financed program? 

The probable answer is that underwriting a 5-property-owning investor's mortgage application is hard work.  Versus a traditional homeowner that needs just a basic W-2 and paystub for an approval, a bona fide real estate investor submits complex tax returns with far more details to reconcile and verify.

The time to underwrite a non-owner-occupied mortgage application is multiples bigger than to underwrite a primary residence one.  And because the bank gets paid the same amount by Fannie Mae on both loans, it only makes sense that the banks are sticking to what's most profitable for them. 

Less work, same profit. You know which way the banks will go on that one.

But, remember -- there are banks participating Fannie Mae's 5-10 Properties Financed program .  If you have between 5 and 10 properties financed and want to purchase a new home, or refinance an existing one, let your first call be to your loan officer or bank.  Ask them for help. Then, if that call comes up empty, call or . 

My investors do allow up to 10 properties financed and I'd be happy to get you started.