Freddie mac and fannie mae underwriting guidelines 2012
In fact, Fannie and Freddie lost market share as the bubble grew: The companies backed roughly half of all home-loan originations in but just 30 percent in and In an ill-fated effort to win back market share, Fannie and Freddie made a few tragic mistakes.
Starting in and —just as the housing bubble was reaching its peak—Fannie and Freddie increased their leverage and began investing in certain subprime securities that credit agencies incorrectly deemed low-risk. Fannie and Freddie also lowered the underwriting standards in their securitization business, purchasing and securitizing so-called Alt-A loans.
While Alt-A loans typically went to borrowers with good credit and relatively high income, they required little or no income documentation, opening the door to fraud which was often perpetrated by the mortgage broker rather than the homebuyer. Fannie and Freddie failed in large part because they made bad business decisions and held insufficient capital.
Also, unlike most private investment firms, Fannie and Freddie had only one line of business—residential mortgage finance—and thus did not have other sources of income to compensate when home prices began to fall. By late summer in —about a year after the start of the housing crisis—Wall Street firms had all but abandoned the U. If Fannie and Freddie were allowed to fail, experts agreed that the housing market would collapse even further, paralyzing the entire financial system.
The Bush administration in September responded by placing Fannie Mae and Freddie Mac into government conservatorship, where they remain today.
7 Things You Need to Know About Fannie Mae and Freddie Mac - Center for American Progress
For years conservative analysts have falsely pointed to these goals as a catalyst for the housing crisis, claiming they pushed Fannie and Freddie to take on unprecedented levels of risk, creating a bubble and a bust in the subprime housing market that sparked the financial catastrophe. A recent study from the Federal Reserve Bank of St. Louis found that the affordable housing goals had no observable impact on the volume, price, or default rates of subprime loans during the crisis, even after controlling for the loan size, loan type, borrower characteristics, and other factors.
Federal Reserve Economist Neil Bhutta reached a similar conclusion in , finding that the affordable housing goals had a negligible effect on Fannie and Freddie lending during the housing bubble. The Alt-A loans that drove their losses were typically made to higher-income households and thus did not qualify for the affordable housing goals. While Fannie and Freddie did hold some subprime mortgage-backed securities in their investment portfolios—many of which qualified for the affordable housing goals—these investments lagged behind the rest of the market and made up only a tiny fraction of total subprime lending during the housing bubble.
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Much better, but both companies still have a very long way to go. Thanks in part to rising home prices, Fannie Mae in August posted its largest quarterly profit since the crisis began, marking its second consecutive profitable quarter. Along with the avoidance of subprime loans, mentioned above, lenders must meet eligibility and underwriting criteria that ensures the credit quality of the financing.
Mortgages purchased and guaranteed by Fannie Mae are called conforming loans. Generally speaking, conforming loans have lower interest rates than non-conforming or jumbo loans, which are typically not backed by Fannie Mae because they exceed the loan size limits. When you have found a lender who is eligible to issue a Fannie Mae-backed loan, you will be guided in filling out a Uniform Residential Loan Application. You will need to gather and provide financial information and documentation. This includes a record of employment and your gross income and statements to back these up, such as a W-2 Form or Form You will also have to provide a total of your monthly debt obligations, such as balances on credit cards, car payments, alimony, and child support.
A front-end DTI determines how much of your gross income goes toward housing costs.
Fannie Mae and Freddie Mac Announce New Guidelines for Management of Law Firms
If your DTI is too high, if you can, make a larger down payment, which will reduce your monthly costs. Homebuyers must also meet minimum credit requirements in order to be eligible for Fannie Mae-backed mortgages. For a single-family home that is a primary residence, a FICO score of at least for fixed-rate loans and for adjustable-rate mortgages ARMs is required. Of course, the better, or higher, your FICO score, the more eligible you are for the lowest available interest rates. Following the mortgage meltdown, Fannie Mae began to focus on loan modifications. Loan modifications change the conditions of an existing mortgage to help borrowers avoid defaulting, ending up in foreclosure, and ultimately losing their home.
Modifications can include a lower interest rate and extending the term of the loan, which would lower monthly payments.
Fannie Mae has completed more than 1. Fannie Mae has recovered since nearly imploding during the mortgage crisis; as of , it is the largest backer of year fixed rate mortgages in the country. These include expanded seller contributions for owner-occupied properties, and lower down payment options for buyers with multiple financed properties. Fannie Mae uses local real estate professionals to prepare, maintain, and list the properties for sale. Most listings have photographs, property descriptions, and other details, including school and neighborhood information.
The number, type, and sales prices vary greatly by market, as does the condition of the properties.
While some homes are move-in ready, others require repairs or even extensive renovations. Notify me of followup comments via e-mail. You can also subscribe without commenting. Notify me of follow-up comments by email.
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Notify me of new posts by email. This site uses Akismet to reduce spam. Learn how your comment data is processed. Rhonda began her career in in the title and escrow industry and joined Mortgage Master Service Corporation as a Loan Officer in and began blogging in Read More….
Rhonda has been helping people with their mortgage needs at Mortgage Master since April If you are buying or refinancing a home in WA, she's happy to help you! Tweets by mortgageporter. The Mortgage Porter. Here are some of the improvements: Reduced documentation for income and assets.
NOTE: Form and verification of employment will still be required.