Gustan Cho The Mortgage Expert December 6, 2021 - 5min read
Gustan Cho Associates are mortgage brokers licensed in 48 states
This Article Is About Fannie Mae Collection Guidelines On Conventional Loans
Fannie Mae and Freddie Mac are the two mortgage giants that regulate the agency guidelines on conventional loans. The two mortgage giants are the largest buyers of mortgages on the secondary market. Conventional loans are often referred to as conforming loans. This is because conventional loans need to conform to Fannie Mae and/or Freddie Mac agency guidelines in order for the two giant Government Sponsored Enterprises (GSE) to purchase mortgages. The two GSEs only buy mortgages that conform to their guidelines. Any mortgages that do not meet Fannie/Freddie Guidelines are called non-conforming loans. Fannie Mae and Freddie Mac has specific conforming loan guidelines on collections and charged-off accounts depending on whether it is owner-occupant primary residence homes, second homes, or investment property loans.
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Conventional Loan Collection And Charged-Off Account Requirements And Guidelines
Outstanding collections accounts and charged-off accounts do not to have to be paid off to qualify on conventional loans if and only if borrowers are financing an owner-occupant primary home. Many people are under the assumption that conventional loans are for borrowers with great credit. This is true. Fannie Mae and Freddie Mae have higher credit requirements on conventional loans than other mortgage loan programs. Many assume that all collection and charged-off accounts need to be paid to qualify for conventional loans. This is not the case. It is correct that conventional loans have higher lending standards than government loans. Borrowers can qualify for conventional loans with less than perfect credit. Conventional loan guidelines on outstanding collections and/or charged-off accounts do not require outstanding collection/charged-off accounts to be paid to qualify for conventional loans. There are specific guidelines on collection and charged-off accounts depending on the type of conventional loan program. Mortgage agency guidelines on collection and charged-off accounts are different on primary owner-occupant mortgages, second homes, and investment properties.
The Importance Of Getting An Approve/Eligible Per Automated Underwriting System On Conventional Loans With Bad Credit
Borrowers can qualify for Conventional Loans with outstanding collections and charge off accounts. This only holds true if the borrower can get an approve/eligible per automated underwriting system (AUS). Fannie Mae Collection Guidelines are specific for primary, second homes, two to four units, and investment property conventional loans. Fannie Mae Collection Guidelines on primary home loans are different than investment conventional loans.
Fannie Mae Collection Guidelines For One-Unit Primary Conventional Loans
Fannie Mae Collection Guidelines on primary single-family homes are very lenient. For primary single-family properties, borrowers do not have to pay outstanding collections accounts to qualify for conventional loans Borrowers are not required to pay outstanding charged-off accounts either on primary home financing that is owner-occupant
Here is what Fannie Mae States With Regards To Fannie Mae Collection Guidelines:
Accounts that are reported as past due (not reported as collection accounts) must be brought current. For one-unit, principal residence properties, borrowers are not required to pay off outstanding collections or non-mortgage charge-offs-regardless of the amount. Note: If the lender marks the collection account Paid By Close in the online application, DU will issue a message in the DU Underwriting Findings report stating that the collection must be paid.
Fannie Mae Collection Guidelines On 2 To 4 Unit Properties And Second Homes
Fannie Mae Collection Guidelines On Second Homes require any collections and charge off accounts that are greater than $5,000 need to be paid at and/or prior to closing.
The maximum outstanding and/or charge off account borrowers can have on their credit report is $5,000 when buying a second home
Fannie Mae Collection Guidelines on two to four-unit multi-family properties require any outstanding collections and/or charge off accounts of greater than $5,000 be paid off
This is not the case when it comes to qualifying for a primary one-unit home
Per Fannie Mae Collection Guidelines, borrowers who have an outstanding collection and/or charged-off accounts do not have to pay them off if they are qualifying for a one-unit primary owner-occupant home
Here is what Fannie Mae states on Fannie Mae Collection Guidelines On 2 To 4 Unit Properties:
For two-to four-unit owner-occupied and second home properties, collections and non-mortgage charge-offs totaling more than $5,000 must be paid in full prior to or at closing. For investment properties, individual collection and non-mortgage charge-off accounts equal to or greater than $250 and accounts that total more than $1,000 must be paid in full prior to or at closing.
Fannie Mae/Freddie Mac Conventional Loan Guidelines OnCollection And Charge Off Accounts On Investment Homes
Investment properties have stricter guidelines when it comes to outstanding collections and charge-off accounts. This is because investment properties are considered riskier investments. Mortgage rates on investment properties are substantially higher than owner-occupant primary homes due to layered risks on investment versus owner-occupant homes.
Here are the guidelines on collections and charge off accounts when it comes to investment properties:
If the borrower has outstanding collections and/or charged-off that is greater than $250, the unpaid outstanding balance needs to be paid off to qualify for investment conventional loans
If the borrower has a total of $1,000 or greater in total collections and/or charge off accounts on their credit report, it needs to be paid off if they need to qualify for investment property loans.
Does Older Outstanding Collections Count Towards Debt To Income Ratio Calculations
In this paragraph, we will compare FHA Versus Fannie Mae Collection Guidelines.
Here are HUD Guidelines on collections and charge off accounts on FHA Loans:
Outstanding collections and charge off accounts do not have to be paid to qualify for FHA Loans
However, with non-medical outstanding collections with a balance of over $2,000, HUD requires mortgage underwriters to take 5% of the outstanding collection balance and use it as a hypothetical monthly debt
This holds true even though borrowers do not have to pay
This only holds true on non-medical collections
Medical collections and charge off accounts are exempt from the 5% rule
This holds true no matter how large the outstanding balance the medical collection and/or charged-off account is.
Fannie Mae Guidelines On Collections And Charged Off Accounts On Single-Unit Owner-Occupant Primary Homes
Fannie Mae Guidelines On collections and charge off accounts on Single-Unit Primary Owner-Occupant Conventional Loans:
Outstanding collection and charge off accounts do not have to be paid on primary owner-occupant one unit conventional loans
With non-medical outstanding collections with a balance of over $2,000, Fannie Mae does NOT require mortgage underwriters to take 5% of the outstanding collection balance and use it as a hypothetical monthly debt like FHA loans
Borrowers do not have to pay anything
The 5% hypothetical debt rule used for debt to income ratio calculations does not apply to conventional loans
HUD requires underwriters to take 5% of the outstanding collection balance and use it as a hypothetical debt on FHA loans
Medical collections and charge off accounts are exempt from the 5% rule as well
This holds true no matter how large the outstanding charged-off account balance is
For more information about the information on this blog or other mortgage-related topics, please contact us at Gustan Cho Associates at 262-716-8151 or text us for a faster response. Or email us at [emailprotected] The team at Gustan Cho Associates is available 7 days a week, evenings, weekends, and holidays. Gustan Cho Associates is a national mortgage company with no lender overlays on government and conventional loans. Over 75% of our borrowers at Gustan Cho Associates are folks who could not qualify at other lenders due to their lender overlays. We also offer dozens of non-QM and alternative financing mortgage programs.
Comments: 8
Robert
November 16, 2020 - 10:40 am Reply
WRONG. those might be your lenders guidelines but not Fannie guides.
Gustan Cho, NMLS 873293
November 16, 2020 - 1:21 pm Reply
What is wrong about it? I will get you the actual screenshot of the guidelines from Fannie Mae allregs.
Travis
December 5, 2020 - 2:45 pm Reply
I’m with Robert on this. Where in FNMA’s B3-6-05 – Monthly Debt Obligations does it say collections must be included in the DTI?
We have some investors with overlays that require it, but others that don’t. I’ve also been at multiple companies where we have sold directly to FNMA/Freddie with collections excluded from the DTI without any issue.
Travis and Robert. You are correct. It is just on FHA loans where they hit you for 5% of the outstanding collection balance on non-medical collections over $2,000. Not charged off accounts. Thank you for the clarification. Really appreciate it.
Lee Moran
January 8, 2022 - 8:05 pm Reply
Greetings,
I am currently in Chapter 13 (as of April 2018) and have 21 months left of payments. I am interested in a mortgage cashout refinance to be able to pay off the remaining balance of my Chapter 13 (approximately $15K left to pay – I have obtained a payoff quote which is attached), and for educational expenses for my son who is going to college at the end of this year. Overall, my main goal is to pay off my Chapter 13 balance. We would like to determine our eligibility, and if eligible, the current terms before submitting to our bankruptcy lawyer (note: we filed bankruptcy in Georiga in 2018 before moving to Florida, where we have resided since August 5, 2018). This home is our primary residence and we intend to remain in it.
Additional information: My spouse and I are both US Veterans (Airforce and Army). I am a veteran with a 60% disability rating and my spouse is at 10%. We have used my husband’s VA loan benefits but paid off that home, so neither of us has an active VA loan. Our current mortgage is under an FHA loan. – Our loan has currently been sold at least three times to new mortgage loan servicers, and we are currently in the process of being transferred to another servicer while we have an active loan modification – The last servicer was Shellpoint Mortgage, and as of December 2021 they have sold our loan to Gregory Funding LLC, and then to Sutton Funding LLC; recently within the same month, a new letter was sent indicating the loan was sold back to Gregory Funding LLC, but no additional information has been provided as of yet. – I have attached the last correspondence regarding our loan modification from Shellpoint to confirm the current terms of our mortgage I am currently employed full-time and receive VA disability compensation at 60% My spouse is unemployed and receives VA disability compensation at 10% My mother resides with us and pays monthly rent and other expenses towards the home I look forward to speaking with you, please let us know if anything additional is needed.
Gustan Cho
January 9, 2022 - 10:50 am Reply
I am confident we can help you. Please reach out to me and my team at [emailprotected]
Randy
February 17, 2022 - 1:33 pm Reply
For investment properties would Fannie require you to pay off “MEDICAL” collection? Or would these be exempt from the rule as they are with FHA?
Gustan Cho
February 17, 2022 - 6:05 pm Reply
Up to a certain limit. Please contact us at [emailprotected].
Fannie Mae guidelines require the lender to review the property's title history and ensure it's clear of any prior ownership claims from previous owners or any judgments or liens, such as unpaid property taxes. Title insurance is required to cover the loan amount on the purchase or refinance of any Fannie Mae loan.
The payments on a federal income tax installment agreement can be excluded from the borrower's DTI ratio if the agreement meets the terms in Debts Paid by Others or Installment Debt described in B3-6-05, Monthly Debt Obligations.
Debt-to-income (DTI) ratio as high as 43% or 50% in some cases. Credit score of at least 640 or 620 in some cases. Down payment as low as 3% No recent major derogatory credit factors, such as foreclosure, short sale, bankruptcy or repossession.
In order to exclude non-mortgage or mortgage debts from the borrower's DTI ratio, the lender must obtain the most recent 12 months' canceled checks (or bank statements) from the other party making the payments that document a 12-month payment history with no delinquent payments.
What is the difference between a Fannie Mae loan and a conventional loan? They are the same. Conventional loans are the mortgages purchased by the government-sponsored enterprises of Fannie Mae and Freddie Mac.
Mortgages purchased and guaranteed by Fannie Mae are called conforming loans. 20 Generally speaking, conforming loans have lower interest rates than non-conforming loans or jumbo loans, which are typically not backed by Fannie Mae because they exceed the loan size limits.
For one-unit, principal residence properties, borrowers are not required to pay off outstanding collections or non-mortgage charge-offs, regardless of the amount.
Collections are not required to be paid off by Freddie Mac, but may be a requirement of the lender. Tax Liens and judgments must be paid and funds must be verified, in addition to the funds required to close.
The primary difference between Freddie Mac and Fannie Mae is where they source their mortgages from. Fannie Mae buys mortgages from larger, commercial banks, while Freddie Mac buys them from much smaller banks.
The two corporations each purchase their loans from different sources — Fannie Mae buys them from large banks and credit unions while Freddie Mac buys them from smaller banks and credit unions. Both entities purchase and sell conventional loans.
16, 2011 — The Securities and Exchange Commission today charged six former top executives of the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) with securities fraud, alleging they knew and approved of misleading statements claiming the companies had ...
must have the monthly payment included. If ten or less months of repayment remains per the credit report, creditor verification, etc., the monthly debt may be excluded if the payment does not exceed five percent of the monthly repayment income.
Certain debts can be excluded from the borrower's recurring monthly obligations and the DTI ratio: When a borrower is obligated on a non-mortgage debt - but is not the party who is actually repaying the debt - the lender may exclude the monthly payment from the borrower's recurring monthly obligations.
With installment loans, it's pretty simple. The monthly payment is clearly stated on the note or appearing in a credit report. however, lenders may also ignore the installment debt if there are less than 10 months remaining on the note.
Tougher credit score requirements than for government loan programs. Conventional loans often require a credit score of at least 620, which leaves out some homebuyers. Even if you qualify, you will likely pay a higher interest rate than if you had good credit.
Sellers often prefer conventional buyers because of their own financial views. Because a conventional loan typically requires higher credit and more money down, sellers often deem these reasons as a lower risk to default and traits of a trustworthy buyer.
A conventional loan is a mortgage loan that's not backed by a government agency. These loans come in all shapes and sizes, and while they don't provide some of the benefits as FHA, VA and USDA loans, conventional loans remain the most common type of mortgage loan.
This is common practice among most mortgage companies. Having a sold loan means that the lender has sold the rights to service the loan (i.e. collect the monthly principal and interest payments.) Everything about the loan remains the same except for the address the mortgage payments will be sent to.
By purchasing mortgages, Fannie Mae and Freddie Mac enable lenders to make more loans. With more lending money available, consumers keep buying homes, and the real estate market stays afloat. In addition, these companies take worldwide investor money and place it into the US housing market.
Conventional loans may require zero or up to six month's reserves depending on your debt-to-income (DTI) ratio, credit score, LTV, etc. Jumbo loans, again are not conforming, have their own set of rules though you should expect to provide anywhere from three to six months' worth of reserves.
The FHA does not require collections to be paid off entirely in order for a borrower to be approved. However, they do recognize that collections can impact a borrower's ability to repay their loan, which is something they take into consideration.
The maximum debt-to-income ratio (DTI) for a conventional loan is 45%. Exceptions can be made for DTIs as high as 49.9% with strong compensating factors like a high credit score and/or lots of cash reserves.
Specifically, it's the percentage of your gross monthly income (before taxes) that goes towards payments for rent, mortgage, credit cards, or other debt.
Your DTI ratio does not include monthly utilities, car insurance expenses, cable bills, cell phone bills, health insurance costs or groceries/food. The higher your debt-to-income ratio, the more debt you are in and the less likely you are to qualify for additional loans.
Examples of significant derogatory credit events include bankruptcies, foreclosures, deeds-in-lieu of foreclosure, preforeclosure sales, short sales, and charge-offs of mortgage accounts.
For mortgage debt, Fannie Mae allows the following: when a borrower is obligated on a mortgage debt – but is not the party who is actually repaying the debt – the lender may exclude the monthly mortgage payment from the calculation of the DTI ratio if the party making the payments is obligated on the mortgage debt and ...
Conventional Financing is a bit stricter than FHA. They only allow for one 30-day late. However, you are not guaranteed to be approved if you're under this line, but you will be eligible as long as you don't have no more than one 30-day late.
By selling mortgages to companies such as Freddie Mac, lenders have the ability to continue making more home loans. Freddie Mac supports the secondary mortgage market by helping keep money flowing through the mortgage system, regardless of whether economic times are good or bad.
Typically, Fannie Mae purchases home mortgage loans from commercial banks, or big banks, whereas Freddie Mac purchases home mortgage loans from smaller banks and lenders. Additionally, Fannie Mae and Freddie Mac loans are typically conventional loans, which are not insured by the government.
A conventional loan is any mortgage loan that is not insured or guaranteed by the government (such as under Federal Housing Administration, Department of Veterans Affairs, or Department of Agriculture loan programs). Conventional loans can be conforming or non-conforming.
Debt-to-income (DTI) ratio as high as 43% or 50% in some cases. Credit score of at least 640 or 620 in some cases. Down payment as low as 3% No recent major derogatory credit factors, such as foreclosure, short sale, bankruptcy or repossession.
selling VA loans to Fannie Mae or Freddie Mac; • selling VA loans to third-party Ginnie Mae approved industry conduits or aggregators, includ- ing certain Federal Home Loan Banks and state housing finance agencies. All FDIC-insured lenders are automatically approved to write VA loans.
HERA established a process for conservatorship of Fannie Mae and Freddie Mac, created FHFA as a first-class regulator, and codified GSE mission provisions like the Housing Trust Fund, Duty to Serve, and Housing Goals. Many are disappointed that Fannie and Freddie are still in conservatorship 14 years later.
They loaded up on subprime, interest-only, or negative amortization mortgages—loans more typical of banks and unregulated mortgage brokers. Fannie and Freddie made things worse by their use of derivatives to hedge the interest-rate risk of their portfolios.
These mortgage loans, known as conforming mortgages, are guaranteed by Fannie Mae. This means they'll make investors whole if the borrower goes into default. Fannie Mae packages these loans into mortgage-backed securities (MBS) before selling them on the open bond market to investors.
Washington, D.C. – The Federal Housing Finance Agency (FHFA) today announced the conforming loan limits (CLLs) for mortgages to be acquired by Fannie Mae and Freddie Mac (the Enterprises) in 2022. In most of the U.S., the 2022 CLL for one-unit properties will be $647,200, an increase of $98,950 from $548,250 in 2021.
The primary difference between Freddie Mac and Fannie Mae is where they source their mortgages from. Fannie Mae buys mortgages from larger, commercial banks, while Freddie Mac buys them from much smaller banks.
For conventional loans, you'll need to put down at least 3% and have a credit score of 620 or higher, but some lenders may have different requirements.
By purchasing mortgages, Fannie Mae and Freddie Mac enable lenders to make more loans. With more lending money available, consumers keep buying homes, and the real estate market stays afloat. In addition, these companies take worldwide investor money and place it into the US housing market.
The baseline conforming loan limit for 2023 is $715,000 – up from $647,200 in 2022. The limit is higher in Alaska and Hawaii, where the number is $1,073,000 for a 1-unit property. Later this year, limits will be set for higher-cost counties as well.
A conventional loan doesn't have to be guaranteed or insured by the federal government, but it does adhere to Fannie Mae and Freddie Mac guidelines in most cases. A conforming loan, on the other hand, describes a certain set of characteristics, mainly loan amount, contained within a home loan.
2022 Conforming Loan Limits California is $647,200 and goes up to $970,800 for high-cost counties for one-unit properties. 2022 Conforming Loan Limits California for 2-unit properties is $828,700 and goes up to $1,243,050 for high-cost counties.
16, 2011 — The Securities and Exchange Commission today charged six former top executives of the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) with securities fraud, alleging they knew and approved of misleading statements claiming the companies had ...
By selling mortgages to companies such as Freddie Mac, lenders have the ability to continue making more home loans. Freddie Mac supports the secondary mortgage market by helping keep money flowing through the mortgage system, regardless of whether economic times are good or bad.
We encourage you to contact your servicer (often your bank or lender) to verify that your mortgage loan is owned or guaranteed by Fannie Mae or Freddie Mac, or you may verify it yourself by accessing the following websites: Fannie Mae www.KnowYourOptions.com/loanlookup, Freddie Mac www.freddiemac.com/mymortgage.
Your credit score might be the most important conventional mortgage requirement. If your score is not at least 620, you can't get approved. Your credit score also affects the mortgage rates lenders will offer you. The higher the score, the lower your rate.
A home appraisal fails when it issues an appraised value that is less than the home purchase price. Several factors can fail a home appraisal, including sluggish housing market conditions, bad comps, and inexperienced appraisers who don't possess adequate local market knowledge.
One of the main requirements for a conventional loan is that the home must be appraised. The appraiser's job is to work out the property's actual market value. Usually, they do this by comparing the property with other, similar homes in the neighborhood that have sold recently.
A conventional loan is a mortgage loan that's not backed by a government agency. These loans come in all shapes and sizes, and while they don't provide some of the benefits as FHA, VA and USDA loans, conventional loans remain the most common type of mortgage loan.
Fannie Mae is a mortgage guarantor, not a home seller. If Fannie Mae owns a home, it's because it was lost in foreclosure and the enterprise has already incurred expenses on it. Therefore, these houses are priced very competitively to help unload them quickly.
You may have received a letterThisletteristoinformyouthatFannieMaehaspurchasedyourloan.Noactionisneeded.Foryourrecords,youcansavethisletterwithyourmortgagedocuments. from us notifying you that we purchased your loan. The letter is informational and you do not need to take any action.
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Gustan Cho The Mortgage Expert
