Las Vegas MTG report: DU 8.0 Changing the mortgage landscape on 12/12/2009
DU 8.0 will be released on 12/12/2009 to update the credit risks and assessment changes that have been implemented over the last several months from Fannie Mae. The DU 8.0 will change how much a home buyer can qualify for with tighter guide lines and the elimination of REFER status. For the purpose of this newsletter I will only be discussing DU 8.0 as it pertains to purchases and not refinances. FHA will be effected by these changes as well.
Changes to Credit risk assessment DU 8.0
These changes are based on current market conditions after evaluations of data of loan performances and are necessary to manage default risks. The following changes are required to keep Fannie Mae and its clients with a means for sound financial home ownership based on credit risks.
Debt Ratio Changes for DU 8.0
- Debt ratios will be lowered to 45% maximum back end. (some lenders were allowing up to 60%) If over 45% DTI will receive an ineligible response. DU 8.0 will no longer issue a refer. (This will eliminate a manual underwrite ability).
- Debt ratios of up to 50% can get an Eligible / Approve with compensating factors. Example strong FICO scores, large assets for reserves.
Minimum FICO Score with DU 8.0
- Minimum FICO score with DU 8.0 will now be 620. Any score with lower then a 620 will receive an ineligible.
Foreclosures with DU 8.0
- DU 8.0 will require home buyers with Foreclosures to be over 5 years from the foreclosure date and within 7 years to have 10% down and a minimum of 680 FICO score.
- Can not buy a second home if a foreclosure is within this time line.
Deed-in-Lieu of Foreclosure DU 8.0
- If Deed-in-lieu of foreclosure is reported within 4 years on the credit report it will get a refer with caution.
- DU 8.0 will determine if the credit report is reporting a deed-in-lieu of foreclosure from specific remark codes issued by the credit bureaus.
- DU 8.0 will determine if a deed-in-lieu of foreclosure is over 4 years old but within 7 years will get a ineligible if the LTV is greater the 90% for a purchase of a principal residence.
Bankruptcies in DU 8.0
- Chapter 13 will require 24 months from discharge date as reported on the credit report. If Chapter 13 is dismissed within 48 months and if filed but not discharged or dismissed within 48 months will recieve a REFER with Caution.
- DU 8.0 will not be able to determine if there are multiple bankruptcies and will instruct clients to refer to specific guidelines from lenders.
DU 8.0 Expanded Approval
- DU 8.0 will issue EA-I, but will no longer issue EA-II or EA-III. (these were higher risk ratings on previous DU versions)
Mortgage Insurance DU 8.0
- Reduced and Low Cost Mortgage insurance is being eliminated as well as Mortgage Insurance for Manufactured Homes.
- New Minimum Mortgage Insurance will be expanded with new pricing Loan Level Pricing Adjustments (LLPA) will be charged.
- Mortgage Insurance will now be able to have the Mortgage Insurance financed either one time upfront charge or a split charge with upfront and monthly fee.
While there are other changes within DU 8.0 the changes are related to how secondary income and assets will be calculated and verification of employment will be done based on whether self employed or W-2 employee.