Fannie Mae just Released Details on their new 97% LTV Program for First-Time Homebuyers – Will This Impact FHA Loan Originations?
In an Announcement dated December 8, 2014, Fannie Mae provided specific details of their 97% LTV option for First-Time Homebuyers.
Fannie Mae will now allow LTV ratios greater than 95% up to a maximum of 97% for “My Community Mortgage (MCM)” purchase transactions (if at least one borrower is a first-time home buyer and pre-purchase home-buyer education and counseling is completed) and standard purchase transactions (if at least one borrower is a first-time home buyer).
The effective dates for this new financing option will be for loan case files underwritten through DU Version 9.2, which is expected to be implemented the weekend of December 13, 2014. The criterion to be used for qualification is outlined in a Matrix contained in Selling Guide Announcement SEL – 2014-15. Most noteworthy is that Mortgage Insurance Coverage will be 18% for MCM loan transactions and 18% + MI Loan-Level Price Adjustment or 35% for Non-MCM loan transactions.
Time will tell if this new high LTV financing being offered by Fannie Mae will impact the number of loans being insured by HUD/FHA. FHA’s minimum investment requirement is 3.5% (with no counseling requirement) but FHA has very high upfront and monthly Mortgage Insurance Premiums (MIP).
My guess is that Fannie Mae’s new program will certainly have an impact on loan transactions involving first-time borrowers with higher FICO scores and reserves that are seeking high LTV financing. These types of borrowers will be attracted to Fannie Mae’s new financing option since the overall MIP costs will probably be lower. Unless FHA reduces its MIP structure, their new book-of-business will most likely be comprised of a higher percentage of borrowers that cannot qualify for a conventional loan (due to lower FICO scores or low reserves). That is not a favorable situation for the FHA insurance fund going forward.