Thursday, October 23, 2008

Updates to Fannie Mae Risk Factors

Fannie Mae has recently made some changes to the way they consider risk factors when underwriting a loan. A risk factor is something that makes a loan more risky or less risky. Here are the changes:

-- The presence of a co-borrower no longer makes a loan "significantly" less risky. However, if the co-borrower has a strong credit history (credit score of 700 or above), then the risk is reduced somewhat.

-- If a borrower has less than 2 months of reserves (principal, interest, taxes, insurance, mortgage insurance, HOA fees), then the risk of a loan is increased. If they have more than 6 months reserves, then the risk decreases. Between 2 and 6 months is considered to be "risk neutral". This does NOT mean a borrower is required to have reserves. Reserves requirements are determined by the individual loan underwriting guidelines or by the underwriting software.

-- Self-employed borrowers are no longer considered to be more risky than salaried or hourly employees.

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