Fannie Mae's Explained

Fannie Mae

What is Fannie Mae? It is a shareholder owned company with a public mission. It exists to expand affordable housing and bring global capital to local communities in order to serve the United States housing market.

It was created in 1938 under president Franklin Roosevelt at a time when millions of families could not become homeowners or risked losing their homes for lack of a consistent supply of mortgage funds across America.

It was established by our government in order to expand the flow of all mortgage funds in all communities, under all economic conditions and to help lower the costs to buy a home.

FM has a federal charter and operates in America's secondary mortgage market to ensure that mortgage brokers and other lenders have enough funds to lend to home buyers at low rates.

The Federal National Mortgage Association (FNMA) commonly known as Fannie Mae is a government sponsored enterprise of the United States. As a government sponsored enterprise, it is a privately owned corporation authorized to make loans and loan guarantees. It is not backed or funded by the government nor do the securities it issues benefit from any explicit government guarantee or protection.

In 1968, to help balance the federal budget, FM was converted into a private corporation. FM ceased to be the guarantor of government-issued mortgages, and that responsibility was transferred to the new Government National Mortgage Association (Ginnie Mae).

Fannie Mae's primary method for making money is by charging a guarantee fee on loans that they have securitized into mortgage-backed security bonds. Investors, or purchasers of Fannie Mae MBSs, are willing to let Fannie Mae keep this fee in exchange for assuming the credit risk, that is, Fannie Mae's guarantee that the principal and interest on the underlying loan will be paid regardless of whether the borrower actually repays.

Fannie Mae receives no direct government funding or backing, and it has looser restrictions placed on its activities than normal financial institutions. For example, it is allowed to sell mortgage-backed securities with half as much capital backing them up as would be required of other financial institutions.

Affordable Housing and Community Development

By creating customized financing solutions, a Fannie Mae works to increase the supply of affordable rental housing and especially the sale of housing across America.

Funding America expands the dream of homeownership and affordable rental housing across the country as well as tackling some of the toughest housing problems. Funding America has created a customized financing solution for each and every individual in all types of communities.

• Low and moderate income buyers
• Urban and Rural residents
• Minorities
• Special housing needs
• Debt financing
• Multifamily housing

Many of Fannie Mae's mortgage products that we offer have special affordability and qualifying features. As you can clearly see there are a multitude of FM programs available. Lower cash requirements for down payments, low mortgage insurance coverage, reduced income requirements, and even higher debt allowances for borrowers with less than perfect credit. Eligible Properties
All eligible properties must conform to FMae guidelines

• 1, 2, 3 and 4 unit detached and attached, primary residences and investment properties
• 1 unit detached and attached Second Homes
• PUDs must meet FMae guidelines
• Condominiums must be FMae-approved or meet FMae guidelines
• Cooperatives in the 5 Boroughs of NYC and Nassau, Suffolk, Westchester and Rockland counties are eligible for NYC Pilot guidelines. Cooperatives not meeting Pilot program parameters may be eligible if warranted to Fannie Mae Type 1 guidelines
• Cooperatives in other areas of New York, New Jersey, Washington, DC and Maryland must meet FMae Type 1 guidelines

• Manufactured Homes
• Investor cooperatives

Subordinate Financing: Variable rate payments for subordinate financing are acceptable when an adjustable-rate mortgage

• is a 5/1, 7/1 or 10/1 ARM
• is a 3/1 ARM with a TLTV of 80% or less
• is subject to subordinate financing provided by the borrower’s employer under an employer-assisted housing program
• is subject to subordinate financing under a home equity line of credit

For Second Homes, if the seller is providing below market rate financing, the TLTV is limited to 80%. Flex 100 and Flex 97 Transactions

• Available for 5/1, 7/1 and 10/1 ARM loans only
• All loans must receive a DU “Approve”
• Non-Occupying Co-Borrowers are not permitted
• Borrowers have the option of contributing a minimum of either $500 of their own funds (Flexible 100 only), or three percent (3%) from flexible sources (Flexible 100 or 97) which may be used for closing or financing costs, prepaids and/or downpayment. If closing or financing costs do not total 3%, the difference must be applied toward downpayment.

Flexible sources of funds include:

• borrower’s own funds
• gifts, grants or unsecured loans from relatives or nonprofits
• employer assisted housing secured borrowed funds

Subordinate financing may be provided by an institutional closed-end fixed or adjustable rate second or an approved Community Second loan.

Source of downpayment may come from one or more of the following:

• Any of the sources listed in our updated guidelines
• An unsecured loan may be from a relative, a non-profit or government agency, or an employer-assisted housing program provided that:The terms of the loan are clearly documented on the application and in the loan file
• The borrower(s) must be qualified with the loan payment
• The lender of the funds is not an interested party to the transaction and has not borrowed the funds from an interested party to the transaction
• If the loan is from the borrower’s employer, the loan cannot be due and payable and the borrower must retain the right to continue making payments on the loan in the event the borrower no longer works for his/her employer

Interested Party/Seller Contributions are not permitted for any portion of the required minimum borrower contribution (at least $500 from borrower’s own funds for Flex 100 or 3% from flexible sources for Flex 97 or Flex 10

Flexible 80/20 Financing Option
Follow all Flex 97 and/or Flex 100 guidelines above, along with the following:

• Eligible for single family owner-occupied principal residence, purchase transactions only
• All borrowers must occupy the property
• Subordinate financing may be provided by an institutional closed-end fixed or adjustable rate second or HELOC or an approved Community Second loan. HELOANs / HELOCs and seller-held seconds are not permitted
• The DU certificate must state under the Verification Messages / Approval Conditions: “This case was processed according to the Desktop Underwriter Flexible mortgage guidelines. It must also meet all the terms of the program as specified in the Guide to Underwriting with Desktop Underwriter as modified”

• Six (6) months cash reserves are required for all borrowers
• For LTVs greater than 75%, borrowers must have a 2-year history of managing rental properties. This requirement may be waived if the borrower qualifies for the mortgage based on the full payment—principal, interest, taxes, and insurance—for the subject property, without having to rely on the rental income

2/1 Buydowns

• 3/1 ARMs -Permitted for 1-2 unit properties only
• For Primary Residences, qualify borrowers as follows:
• Note rate when the credit score is less than 660 for salaried and/or commissioned borrowers or 680 for self-employed borrowers
• Initial (bought down) rate when the credit score is greater than or equal to 660 for salaried and/or commissioned borrowers or 680 for self-employed borrowers
• For Second Homes, qualify the borrowers at the note rate
• 2/1 Buydowns are NOT permitted on cash out refinances, Interest First loans, investment property or loans with non-occupying co-borrowers

For Primary Residences, qualify borrowers are as follows:

• Note rate when the credit score is less than 660 for salaried and/or commissioned borrowers or 680 for self-employed borrowers
• Initial (bought down) rate when the credit score is greater than or equal to 660 for salaried and/or commissioned borrowers or 680 for self-employed borrowers
• For Second Homes, qualify the borrowers at the note rate
• For transactions involving a trailing Co-Borrower, qualify at the note rate
• 3/2/1 Buydowns are NOT permitted on 3/1 ARMs, cash out refinances, Interest First loans, investment property or loans with non-occupying co-borrowers
• Flex 97 and Flex 100 loans with subordinate financing must be qualified at 1% above the “bought down”

• Appraisal as per DU feedback
• The appraisal must be completed by a state-licensed and/or state-certified appraiser
• Any appraisals made “subject to repairs” will require a final inspection

Mortgage insurance is required for all loans with LTVs in excess of 80%. Please refer to Section 200 for acceptable insurers and required coverages.

For any questions, you can contact us here.

1.347.294.4200