Continuity of Obligations and Recently Listed properties
Columbus Day Holday
As a reminder Monday October 13, 2008 is a Holiday in which Guaranteed rate will be open but unable to fund loans in observance of this holiday. Monday can not be counted for a borrowers recession period.
Continuity of Obligation Clarification
Fannie Mae has clarified their requirements for Cash Out and Rate/Term transactions when the borrower is on title, but not obligated on the original mortgage note being satisfied in Announcement 08-22. This applies to all conforming loans regardless that are underwritten via DO. Loans that are underwritten via LP are not affected by the policy change.
Definition of Acceptable Continuity
For refinance transactions originated using Fannie Mae products, when there is an outstanding lien against the property acceptable continuity of obligation exists when any of the following conditions are met:
Ø There is at least one borrower obligated on the new loan who was also a borrower obligated on the existing loan being refinanced.
Ø The borrower has been on the title and has been residing in the property for at least 12 months and has either paid the mortgage for the last 12 months or can demonstrate a relationship (relative, domestic partner, etc.) with the current obligor.
Ø The existing loan being refinanced and the title have been held in the name of a natural person or an LLC, as long as the borrower was an officer of the LLC prior to the transfer.
Ø The borrower has recently inherited or was legally awarded the property (divorce or separation).
Established Acceptable Continuity Policies
Fannie Mae loans that meet the Continuity of Obligation requirements above may be underwritten and priced as either a No Cash Out Refinance or Cash Out Refinance, as applicable based on the transaction.
Loans without Established Continuity
If the borrower is currently on title but is unable to demonstrate an acceptable continuity of obligation or there is not currently an outstanding lien on the subject property, the loan must be underwritten and priced as a Cash Out Refinance and is subject to the following restrictions:
IF the loan does not meet the established continuity definition due to…
there is no outstanding lien on the subject property,
the property was purchased within the 6 to 12 month period prior to the application date for the new financing,
the LTV ratios are to be based on the lesser of the original sales price/acquisition cost (as documented by the HUD-1) or the current appraised value.
the property was purchased more than 12 months prior to the application date for the new financing,
the current appraised value may be used to calculate the LTV ratios.
there is an outstanding lien on the subject property, but continuity of obligation does not exist,
the borrower has been on title for at least 6 months,
the maximum LTV ratios will be limited to 50% based on the current appraised value
Doral and Oakmont Recently Listed Properties
Agency loans on properties that were listed for sale and taken off the market within the past 180 days are eligible for either a rate/term or cash-out refinance, however, cash-out refinances are limited to 70% maximum LTV. Properties that were listed for sale must have been taken off the market on or before the loan application date. Loans that are negatively impacted by this change must be funded to the borrower by October 20, 2008.
Pinehurst Number of Financed Properties
Regardless of the occupancy intent of the borrower the Pinehurst programs are now limiting the total number of financed properties to four. Loans must close within their original lock period that are affected by this change as no extensions will be granted.
Please feel free to contact your VP of Wholesale Lending or the Underwriting Department for further clarification if needed.
Thank you for your continued business!