In response to a directive last week from the Federal Housing Finance Agency, both Fannie Mae and Freddie Mac today issued bulletins indicating that they will only purchase qualified mortgages when the Ability-to-Repay rule goes into effect on January 10, 2014.  EFFECTIVE WITH APPLICATIONS TAKEN ON OR AFTER JANUARY 10, 2014, both Fannie and Freddie will rely on selling lender Representations and Warranties that all loans purchased are, in fact, qualified mortgages or are otherwise exempt from the ability-to-repay rule (i.e. the loan is secured by an investment property).

Aren’t ALL loans eligible for sale to the GSEs automatically Qualified Mortgages?  Why is this a big deal?

While there is a “GSE Exemption” in the QM rule that grants loans eligible for purchase by Fannie and Freddie QM status for the next 7 years (or until the GSEs are no longer in receivership, whichever occurs first), those loans still must meet certain overarching guidelines.  In order to ensure that this happens, Fannie Mae and Freddie Mac are making the following changes to their product eligibility guidelines effective with applications taken on or after January 10, 2014 (note that individual lenders/investors may modify their product guidelines before this date, so be sure to watch for bulletins for those that you do business with):

  • Loans that are not fully amortizing will be ineligible for purchase (i.e. interest-only loans) except for investment properties
  • Loans with terms longer than 30 years will be ineligible for purchase
  • Loans with points and fees greater than 3% of the loan amount (or that exceed limit for small-balance loans, if applicable) will be ineligible for purchase, except for investment properties

The elimination of the interest-only and other odd products will only impact a small percentage of the GSEs’ business (based on recent origination trends), but the points-and-fees restriction could have a large impact on originators – ESPECIALLY those with affiliated business relationships – because of the way that “points-and-fees” are calculated under the rule.

We’ll be discussing the Ability to Repay and Qualified Mortgage rule in depth in our CE courses this year, so be sure to get your spot reserved early!  We’ll be publishing our CE schedule for 2013 later this month.

In the meantime, you can find the bulletins from Fannie Mae and Freddie Mac and some good information on compliance with the QM/ATR rule from the CFPB at the links below.

See you in class!


Fannie Mae Lender Letter LL-2013-05

Freddie Mac  Industry Letter 5/6/2013

CFPB Ability to Repay and Qualified Mortgage Rule: Small Entity Compliance Guide

Can You Expect a Hike in the Fannie/Freddie Guarantee Fee in Your State?

The Federal Housing Finance Agency (the agency tasked with overseeing the Fannie and Freddie conservatorship) has announced that it intends to hike the guarantee fee on all loans sold to the agencies secured by properties in the states with the highest cost of foreclosure.  Those states are:  Illinois, Florida, Connecticut, New Jersey and New York.  This fee hike would go into effect in 60-90 days (it needs to be formally published in the Federal Register first for public comment), and means that loan originators will likely see a worsening in pricing on loans made on properties in these states in roughly 45 days.  Once the notice is published, you’ll have a chance to comment on the proposal at  It’s worthwhile to make your voice heard, so take a few minutes and give them your thoughts on the matter!  You just need to wait until after the notice is officially published.

Happy originating!


It’s official!  Congress has passed a two-month extension of the payroll tax cut that was initially implemented to put more money in the hands of consumers each week.  Unfortunately, the extension is funded by a hike in the fees that Fannie and Freddie charge banks for the government guarantee that’s now on all of the mortgage-backed securities (MBS) they issue.  Two brief comments before I leave for the holiday:

  1.  This is the first time in history that a fee has been placed on mortgage originations to fund something completely unrelated to the mortgage market.  As such, this is effectively a new TAX and not a fee, as they call it in the bill.
  2. Does Congress really think that banks are going to be the ones paying this fee? As Paul Muolo over at Origination News so eloquently put it, “If they do, maybe Santa will come sliding down their chimneys in two days.”  All this does is raise the cost of purchasing or refinancing a home, and it comes just at the time that the news from the housing market isn’t all doom and gloom. Merry Christmas, homeowners!  You just got stuck paying for someone else’s Christmas gifts…

REAL ESTATE AGENTS – Freddie Mac is Offering You a Holiday Gift

If you’re a real estate agent looking to pick up a little extra cash this holiday season (and which one of us isn’t?!) Freddie Mac – the nation’s second largest purchaser of residential mortgage loans – wants to help you make a quick $1,000.


Simple.   If you are the selling agent on an Illinois property owned by Freddie Mac and offered for sale through the HomeSteps™ program, Freddie Mac will pay you an additional $1,000 bonus at closing.  (Some other states are eligible for this offer too.) Only owner-occupied transactions are eligible for this incentive, and the initial offer on the property must be submitted between November 15, 2011, and January 31, 2012. Additionally, the transaction must close no later than March 15, 2012.  Your buyers are even eligible for a 3% closing cost credit and a free home warranty!

Full details can be found at

Happy selling!

HVCC is dead, long live HVCC! Fannie and Freddie announce new Appraiser Independence Requirements.

In monarchies of old, it is said that whenever a King or Queen died, the courtiers would lament the passage of the old ruler and usher in the new in the same breath.  While chants of “The King is dead!  Long live the King!” are stuff of legend and lore, it seems appropriate to make the comparison to Friday afternoon’s announcement by both Fannie and Freddie regarding the “new” Appraiser Independence Requirements to replace HVCC effective November 1, 2010 at the latest.

As promised, we are providing you with a synopsis of the release.  Here are the highlights:

1)   Under the new requirements, lenders selling to Fannie or Freddie are still responsible for engaging (ordering appraisal reports from) appraisers.  This can be done through lender roster appraisers, lender-approved appraisal management companies or through correspondent lenders who may have their own appraisers or appraisal management company relationships.  In no case is a true third-party (including mortgage brokers) allowed to compensate appraisers or order appraisals unless through a lender-approved Appraisal Management Company (AMC).  Much to the chagrin of most mortgage brokers, there is essentially no change from the existing HVCC requirement here.

 2)   Lenders must continue to keep the origination function completely isolated from the appraisal function.  In other words, any employee who works in mortgage origination (or “sales”) should not order an appraisal or “have any substantive communications with an appraiser or AMC relating to … valuation or having an impact on valuation, including ordering or managing an appraisal assignment.”  The only change from the existing HVCC requirement is that AMCs are now explicitly included on the list of prohibited contacts for sales/origination employees.  Also, an exception to these requirements has been added for small entities who truly can’t keep the two functions absolutely separate, as long as they have “prudent safeguards” in place to ensure that no influence or interference with appraisals occurs from a sales employee.  Note that this exemption only applies to entities that are actually selling loans to Fannie and Freddie, NOT to correspondent lenders or brokers.

 3)   Lenders are now explicitly permitted to order appraisals from Appraisal Management Companies who are affiliated with them, as well as staff (employee) appraisers or appraisers acting as independent contractors.  This removes all doubt of the acceptability of such relationships which were questioned by many in the industry since HVCC was first announced.  It will be interesting to see the reaction to this, as it raises serious questions about a conflict of interest in the transaction.  How can you assure appraiser independence if the appraiser is being compensated by an entity that is wholly owned by the lender selling the loan to Fannie or Freddie?  This seems to cut against the general intent of these rules.

 4)   Second appraisals should not be ordered on any transaction unless the lender has reason to believe that the original appraisal was flawed or tainted (reasons for which must specifically be noted in the file) OR the second appraisal is required by law or ordered as part of a standard appraisal review or QC process.  If second appraisals are ordered for review/QC, lenders need to have a policy of selecting the “most reliable appraisal, rather than the appraisal that states the highest value”.  This is a slightly more in-depth explanation of the prohibition on “value shopping” than appears in HVCC.

 5)   Lenders are now explicitly allowed to use appraisals transferred from another lender or lender’s AMC, including for transactions where a mortgage broker has originated the loan.  Note that if a lender elects to do so they must assume complete responsibility for that report’s compliance with the appraiser independence requirements.  This provision should come as a relief to mortgage brokers across the country who have long been fighting for the ability to transfer reports and save borrowers’ time and money.

 6)   Borrowers must continue to be provided with copies of appraisal reports “promptly upon completion at no additional cost…and in any event no less than three days prior to closing.”  This 3 day requirement can be waived by the borrower in writing, so long as the waiver request is completed at least 3 days before closing.  In practice, just as with the rescission waiver allowed in the Truth-in-Lending Act, don’t expect lenders to accept these appraisal report waivers either.

 7)   It should go without saying, but appraisers must continue to be State-licensed or certified by the State in which the subject property is located.  Additionally, all of the prohibitions on coercion, influencing or attempting to influence the value or composition of an appraisal report remain in effect.  They are too numerous to list here, but are fully detailed in the Fannie and Freddie releases.

 A document with the full requirements can be found at:

If you read the above document, remember that the term “Seller” refers to the entity actually selling a loan to Fannie Mae or Freddie Mac, which is not always the entity funding that loan.

***The effective date for the sunset of HVCC and implementation of the new requirements is November 1, 2010 or when the Federal Reserve issues final regulations on the Dodd-Frank bill, whichever is earlier.  HVCC remains in effect until that time.***

Latest SAFE Test Pass Rates & FHFA goals for 2010-2011

On Thursday morning, the NMLS released new statistics regarding the pass rate for mortgage loan originators taking the national and state components of the SAFE Exam.  The pass rates on the national component aren’t improving.  In fact, they’re getting worse.  For the national component, as of August 31, 2010, only 70% of first-time test takers are passing the exam.  This has slipped from the previous report which showed that 71% were passing.  Like in previous reports, the “fail once, fail again” trend is evident, as the re-take pass rate remains at 44%.  Folks taking the various state components are faring better, with a first-time pass rate of 82% (up from 80% in June) and a re-take pass rate of 46% (up from 44% in June). 

If you haven’t taken your national or state SAFE exams, TIME IS RUNNING OUT!  Remember, if you fail you must wait 30 days before re-taking the exam.  Don’t put yourself in the position where if you fail the exam you can’t work.  Taking the pre-license or continuing education courses before you take the exams will help you prepare.  Supplementing with self-study material that is current and follows the entire NMLS content outlines is probably your best weapon.  Years of experience will not sufficiently prepare you to pass.  Finally, it seems that availability times are filling up fast at the various test centers.  BE SMART – schedule your exam TODAY!

Also worthy of note, yesterday the Federal Housing Finance Agency (FHFA) released its 2010-2011 goals for Fannie Mae and Freddie Mac (the Agencies) with respect to affordable housing.  The 71-page rule is effective on October 14th and can be found in the Federal Register.  It will appear in the Code of Federal Regulations at 12 CFR 1249.  Just a few highlights:

For 2010 and 2011:

  • Purchase money mortgages for low income homebuyers (defined as household income less than 80% of the area median income) should account for at least 27 percent of all of the purchase money mortgages purchased by the Agencies.
  • Purchase money mortgages for very low income homebuyers (defined as household income less than 30% of the area median income) should account for at least 8 percent of all of the purchase money mortgages purchased by the Agencies.
  • Purchase money mortgages for properties located in low income census tracts (LICTs) or for moderate income families in minority census tracts should account for at least 13 percent of all of the purchase money mortgages purchased by the Agencies.
  • Refinance mortgages for low income homeowners should account for at least 21 percent of all of the refinance mortgages purchased by the agencies.

These goals are for single family, owner-occupied units only.  There are other goals for multi-family housing and financing for rental units as well.