Understanding Fannie Mae’s selling guide is crucial for lenders, especially when dealing with borrowers who own multiple properties. This guide clearly outlines the reserve requirements based on the number of financed properties a borrower holds. Navigating these guidelines correctly ensures loan eligibility and compliance. This article breaks down Fannie Mae’s criteria for reserve requirements related to borrowers with multiple financed properties.
How Fannie Mae Determines the Number of Financed Properties
Fannie Mae’s Desktop Underwriter (DU) employs a systematic approach to determine the number of financed properties a borrower is obligated on. This count directly impacts eligibility, particularly concerning reserve requirements. The determination process prioritizes data hierarchy within the loan application.
Utilizing the “Number of Financed Properties” Field
The most direct method DU uses is the “Number of Financed Properties” field in the online loan application. If a lender completes this field, DU will take this number as the definitive count of financed one- to four-unit residential properties, including the subject property. Accurate completion of this field by the lender is paramount.
Leveraging Real Estate Owned (REO) Information
If the “Number of Financed Properties” field is left blank, DU then turns to the Real Estate Owned (REO) section of the application. DU counts the number of residential properties listed in the REO section that are associated with a mortgage payment or a mortgage/HELOC. Crucially, properties identified as commercial, multifamily, land, or farm within the “Other Description” field of each REO are excluded from this count.
Assessing Mortgages and HELOCs
In scenarios where both the “Number of Financed Properties” field and the REO section are incomplete, DU will analyze the disclosed mortgages and Home Equity Lines of Credit (HELOCs) within the loan application. The number of mortgages and HELOCs disclosed becomes the basis for the financed properties count. It’s important to note that providing comprehensive REO data ensures a more precise loan assessment.
Defaulting to Credit Report Data
When none of the above information sources are available in the loan application, DU’s final step is to utilize the number of mortgages and HELOCs reported on the borrower’s credit report. This serves as the ultimate fallback for determining the number of financed properties.
Accounting for the Subject Property
It’s important to note that DU automatically adds “1” to the financed properties count for purchase and construction transactions. This adjustment is made when the REO section, application mortgages, or credit report mortgages are used to determine the initial count, ensuring the subject property is included in the total.
Impact on Loan Eligibility and Reserve Requirements
The number of financed properties calculated by DU is not just a tally; it’s a critical factor in assessing loan eligibility. This number directly influences several key aspects of the loan, including:
- Minimum Credit Score: For borrowers with seven to ten financed properties, a minimum representative credit score of 720 is mandated.
- Minimum Required Reserves: The Fannie Mae selling guide specifies reserve requirements that increase with the number of financed properties. Lenders must verify these reserves.
- HomeReady Eligibility: Eligibility for HomeReady mortgages can also be affected by the number of financed properties.
Understanding these implications is vital for lenders to accurately assess risk and ensure loan compliance with Fannie Mae guidelines.
Lender Responsibilities and DU Messaging
DU plays an active role in keeping lenders informed throughout this process. DU issues messages that explicitly state the number of financed properties it has used for the loan case file and the source of this information (e.g., “Number of Financed Properties” field, REO section, etc.).
If DU uses data from the “Number of Financed Properties” field or the REO section and this information is inaccurate, the lender is responsible for correcting the data and resubmitting the loan case file to DU. Similarly, if DU uses mortgage and HELOC data from the application or credit report and this is incorrect, lenders must rectify this by providing the correct number in the “Number of Financed Properties” field or completing the REO section and resubmitting.
By clearly defining how financed properties are counted and how this count affects eligibility and reserve requirements, Fannie Mae’s selling guide provides a transparent framework for lenders. Adhering to these guidelines is essential for ensuring loan quality and navigating the complexities of financing multiple properties.
