In a letter sent to sellers Wednesday March 3rd, 2021, Fannie Mae, the government sponsored entity (GSE), said it was tightening the underwriting criteria for second homes and investment properties.
The change in policy will take effect for loans submitted to Fannie’s loan delivery system on or after April 1, and for loans delivered into MBS pools with issue dates on or after April 1.
In explaining the changes Fannie Mae said,
Previously, both Fannie Mae and Freddie Mac tightened their underwriting standards in response to the coronavirus pandemic.
The policies will take effect for loans submitted to Fannie’s loan delivery system on or after April 1, and for loans delivered into MBS pools with issue dates on or after April 1.
Fannie Mae said that the amendment has prompted changes in its eligibility policies. All second homes must be underwritten with Desktop Underwriter, receive an approve/eligible recommendation and be delivered as a DU loan, Fannie Mae said.
There are two major changes coming:
First, Fannie Mae is cutting back on purchases of these loans, limiting its investment- and second home-backed loan acquisitions to just 7% of its total portfolio. The company is also focusing on lenders who have “excessive delivery volume” of these types of loans -- a move that will undoubtedly decrease the number of conventional loans available for investors.
Second, Fannie has also announced it will tighten its underwriting standards for second-home and investment property purchases. So not only will investment loans be harder to come by; they’ll also get more difficult to qualify for, too.
The new standards will require borrowers to go through the GSE’s Desktop Underwriter (DU) program -- a system that automatically assesses a borrower’s qualifications and eligibility. All second home- and investment-backed loans will need to receive an Approve/Eligible recommendation through this program and have their loan delivered as an official DU loan in order to qualify.
Fannie Mae plans to update its eligibility matrix to reflect all these changes next month, but currently, borrowers purchasing one-unit investment properties will need a down payment of at least 15% and a 620 credit score to qualify using the DU program.