FNMA 97% LTV

FNMA released new info on their 97% LTV product. Does anyone else see an issue with the LLPA exceeding 3%? Between the FICO/LTV price adjustments and the MI LLPA, there could be as many as 5.75% LLPA. Obviously this would make it ineligible for sale to FNMA as it would fail the QM test.

Without stating such, looks like they are driving the FICO to 680+.

Anyone else struggling with loan parameters to apply to this program to assure it meets the QM Agency test?

Thanks

A salable loan to Fannie is a QM for all matters except ATR.

(ii) Eligible loans. A qualified mortgage under this paragraph (e)(4) must be one of the following at consummation:

(A) A loan that is eligible, except with regard to matters wholly unrelated to ability to repay:

(1) To be purchased or guaranteed by the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation operating under the conservatorship or receivership of the Federal Housing Finance Agency pursuant to section 1367(a) of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (12 U.S.C. 4617(a)); or


See below

(A) A loan that is eligible, except with regard to matters wholly unrelated to ability to repay:

Need to open this for discussion.

As I read this matters such as points and fees are not eligible for exclusion from the QM test, only the 43% ATR restriction.

I can't speak if Fannie has similar language but Freddie has the following language in their September 2013 Industry Letter:

Initially, for Mortgages with applications received on or after January 10, 2014, we will rely on selling representations and warranties that the Mortgage is a qualified mortgage. In the future, we plan to collect and assess data on these Mortgages to assist in validating whether they meet certain qualified mortgage criteria. This process will be phased in over time.

and from the Commentary to .43(e)(4):

To be a qualified mortgage under §1026.43(e)(4), the creditor must satisfy the requirements under § 1026.43(e)(2)(i) through (iii), . . . however, the loan must be eligible for purchase or guarantee by Fannie Mae or Freddie Mac (or any limited-life regulatory entity succeeding the charter of either), including satisfying any requirements regarding consideration and verification of a consumer's income or assets, credit history, debt-to-income ratio or residual income, and other credit risk factors, but not any requirements regarding matters wholly unrelated to ability to repay.


1026.43(e)

(2) Qualified mortgage defined—general. Except as provided in paragraph (e)(4), (e)(5), (e)(6) or (f) of this section, a qualified mortgage is a covered transaction:

(i) That provides for regular periodic payments that are substantially equal, except for the effect that any interest rate change after consummation has on the payment in the case of an adjustable-rate or step-rate mortgage, that do not:

(A) Result in an increase of the principal balance;

(B) Allow the consumer to defer repayment of principal, except as provided in paragraph (f) of this section; or

(C) Result in a balloon payment, as defined in § 1026.18(s)(5)(i), except as provided in paragraph (f) of this section;

(ii) For which the loan term does not exceed 30 years;

(iii) For which the total points and fees payable in connection with the loan do not exceed the amounts specified in paragraph (e)(3) of this section;

Oh boy Dan - did I ever read that backwards. Since most of my clients deal solely in portfolio lending and I haven't spent a lot of time on this section of the regulation, I should have just kept my mouth shut.

I should have just kept my mouth shut.

You're joking....right!!!

Thanks for your feedback Dan. I thought the two were totally separate and fees came into play on Agency deals.

The 97% program looks good on the surface but the devil is in the details. In order to assure a QM from the points and fees perspective, borrowers will neeed a 680+ score. The high FICO fisrt time borrowers are out there, but this will definitely lead to adverse selection for FHA as these higher FICO borrowers have previously gone FHA.