Freddie Issues Appraisal ‘Best Practices’ to Help Its Lenders

In what is being viewed as a further toughening of appraisal requirements, Freddie Mac late last week issued new underwriting guidance that urged lenders to adopt a new set of “best practices” for handling appraisals.  The new guidelines spell out both appraiser and lender staff qualifications as well as appraiser selection. Significantly, the longest part of the new recommended practices relate to appraisal reviews and the steps lenders need to follow in monitoring the quality and accuracy of new appraisals.

Part and parcel of the new Freddie Mac appraisal guidance is assuring compliance with the recently implemented and controversial Home Valuation Code of Conduct. Inside Mortgage Finance is hosting an audio conference on July 29 at 3 pm EDT on “Coping with Appraisal Changes.” Click here for more info.

Tougher Mortgage Underwriting Limiting New Home Sales

This year’s tougher mortgage underwriting environment is clearly limiting home sales –particularly among first-time homebuyers– a new Inside Mortgage Finance- sponsored study reveals. Down payment and credit score requirements, which are much more stringent than they were a year ago, were cited as among the biggest obstacles facing first-time homebuyers this summer. A somewhat new impediment to both first-time homebuyers and current homeowners in buying a home are appraisal problems, according to the report. The new research is based on a nationwide survey of more than 1,500 real estate agents conducted by Campbell Surveys last month.

For further information on the new study, contact John Campbell at (202) 363-2069 or john@campbellsurveys.com.

Despite Tightened Underwriting, Fannie/Freddie Volume Climbs

Fannie Mae and Freddie Mac continued to dominate the residential mortgage business in the first half of 2008. But the imposition of significantly tougher underwriting standards could limit the government sponsored enterprises’ activity in the balance of the year.

According to numbers compiled by Inside Mortgage Finance, Fannie’s and Freddie’s combined mortgage business jumped a healthy 15 percent in the first six months of the year. Much of the growth came from Fannie, who posted a huge 24 percent jump in volume on a year-over-year basis. Freddie, meanwhile, saw a much more modest 5 percent increase in business volume.

The GSEs’ tightening of underwriting was very apparent in the second quarter as both firms saw lower loan-to-value ratios and higher FICO scores. Fannie’s average LTV was 71.3 percent and average FICO was 737.6 in 2Q08. Freddie’s average LTV was 70.5 percent and average FICO was 741.8 for the period.

Fannie Unveils Tougher Underwriting, Higher Fees for Jumbos

Speculation that Fannie Mae and Freddie Mac would be approaching their newfound ability to purchase jumbo mortgages very cautiously is turning into fact.

Fannie last week unveiled its new jumbo loan selling guidelines for lenders and the requirements – and pricing – are pretty tough. In fact, the GSE’s new jumbo loan underwriting rules are considerably tougher than what is found in the non-agency or private sector jumbo market these days.

Fannie is requiring full documentation on loans between $427,000 and $729,750, and is generally limiting the higher loan amounts to plain vanilla fixed-rate mortgages and adjustable-rate mortgages (subject to lower loan-to-value ratios). No cash-out refinances are permitted, and neither are relocation mortgages, reverse mortgages or anything other than one unit properties.

Lenders can’t use Fannie’s streamlined underwriting programs with the new jumbo loans. Plus, Fannie is tacking on an additional 25 basis point fee on jumbo FRMs and a 75 bps fee on jumbo ARMs. Freddie is expected to follow Fannie’s lead in imposing conservative underwriting to its jumbo purchases. All this will make FHA’s more liberal underwriting and lower fees with jumbo mortgages more attractive to both lenders and borrowers.