Sorry, dear, but We're All Nerds Now.

I meant it: these look like what "jumbos" looked like in the mid-90s. This ain't go-go, especially since the "take another 5% off the max LTV if it's a declining market" rule does apply here.

And they aren't inviting everyone to refinance every stinking POS into this program.

rsj, be sure to bring us any jewels you find in your browsing.

My guess is that the outrage level on the broker boards will take their usual illiterate whining to new heights (or depths) of incoherence.

... and, no condos?

Condos are allowed.

Sorry not to clarify for you civilians. To us, a condo is a single unit (the borrower is just buying one unit).

What is excluded would be duplexes, triplexes, etc. that have one owner-occupied unit plus one to three rental units, all in the same structure.

45% DTI disappoints me, though.

Mook, we always did let jumbo loans have higher DTIs than conforming loans.

The idea is that if you have enough income to get to 45% on the kind of PITI we're talking about, you actually have a lot more dollars left at the end of the month than someone with a lower "conforming" income has.

I mean, after taxes a jumbo borrower might have 20% of income left here. Well, if the income is $15,000 a month, that leaves $3,000 a month to eat on. A conforming borrower who has 20% left at the end of the month might only make $5,000 a month, or $1,000 left over.

And bear in mind that this hinges on full doc as well as full qualifying payment. No stated bizness, no "teaser rate" bizness.

a question: isn't PMI harder to get these days? That might be a killer right there.

Well, yes, MI is harder to get. On the other hand, this thing only goes to 90%. I don't think with these guidelines anyone would have trouble getting MI.

The MI probably would have been a deal-breaker if the guidelines had been less restrictive. I suspect that Fannie is offering to buy only what it already knows the MIs are willing to insure.

Another question--These guidelines are for 1-units, but the MSA list shows guidelines for multi-units as well?

That part is certainly interesting. The limits would automatically rise for multi-units just because the current law distinguishes different limits for up to four units.

But the GSEs have never been required to make 2-4 unit loans in all of their different loan programs. For instance, when they first started buying IO loans, they limited that only to single units.

They have obviously taken the position that the increase in the multi-unit limits doesn't require them to buy those loans. I'm willing to bet they ran it through their risk models and the thing nearly exploded.

The big problem, btw, with multi-units is that they've been plagued with occupancy fraud. The borrower claims to be going to occupy one unit and rent out the others, but really they're renting them all out. I suspect the problem Fannie is trying to get at is really to keep these loans owner-occupied.

The reason for the resubordination requirement is that Fannie doesn't want to be the bagholder for a second mortgage balance that shouldn't have been made in the first place?

That's my theory. I suspect they believe, with good reason, that there is too much pressure to inflate the appraisal in order to get that second lien amount "included" in there.

Part of the "problem" is that the GSEs got told this was happening not to "bail out" existing loans in a refi, but to "support" high-cost housing markets by enabling people to buy houses there with GSE loans. So they are pretty much calling the bluff here: these guidelines were not written to make it easy to put a refi into the product. They'll take nice clean very low risk refis, but they won't take any potentially dubious ones. Even without the resubordination requirement, that 75% LTV on a no-cash-out refi is stunning. They don't want to be the place that any dumb loan gets recycled.

I mean, until, what, the mid-'80s the "rule of thumb" DTI limits were 22/28, correct? Then it gradually rose to 28/33, or thereabouts?

No.

HTI (housing payment to income) was traditionally 22-28%. DTI (all debt to income, including the house payment plus all other tradeline debt) was 36-38%. Those were the conforming rules.

Quite some time ago Fannie Mae gave up on the HTI metric. They don't care whether your only debt is your house or not, just so the total doesn't go over the DTI limit.

So the official standard is still 36% for a manually-underwritten conforming conforming loan. And 45% for a jumbo-conforming loan.

Now, they go over 36% on conforming conforming all the time with AUS, if they have some kind of "compensating factor."

I'm not defending 45%; I'd have preferred 42%. I'm just pointing out that somewhat higher DTIs in jumbo land have always existed, because of the issue with higher "residual income."

With #11, what source of funding do they have in mind? Maybe I'm confused, but that looks a lot like Fannie Mae implicitly encouraging 95% LTVs.

No, they aren't allowing 95% LTVs. The highest they go on a purchase is 90% LTV/CLTV.

That means that 10% cannot be financed. You could do an 80/10/10 deal, with 80% LTV and 90% CLTV (if you can find a second lien lender), but there has to be a 10% down payment.

The point of rule 11 is that at least half that 10% down payment has to come from the borrower's own funds, like savings accounts or proceeds from sale of current home. What mostly you are excluding here is gifts: you can't make the whole down payment with money from mom or some "grant" from somebody. You could use gift funds for part of it, but you still have to make that 5% contribution from your own accumulated funds.

This requires the borrower to submit actual documentation proving that they owned the money for the down payment before the sales contract on the property was signed.

This is also a typical jumbo lending rule. Think of it as "real skin in the game."

Reserves for primary residence are 2mo. It'd be interesting to compare these to Thornburg's guidelines

I frankly don't remember Thornburg's guidelines well enough; it's been a couple of years.

I'm sure TMA had higher reserve requirements for "superjumbos" (over $650,000). I think they might have gone with 2 months on a primary under that. But don't quote me on it.

It's a very minimal reserve requirement for jumbos, but given the rest of the package it doesn't strike me as scandalous.

It'll be interesting to see what the holders of the seconds are going to do, given the recent stories of National City's reluctance to allow a re-fi w/o paying them off.

Well, but keep these CLTV limits in mind, too.

Fannie only buys the loan if the CLTV on a refi is 95% or less.

If the second lien holder is refusing to subordinate, it probably believes that the real CLTV is higher than that.

So in essence, Fannie Mae is letting the second lien holders be a kind of reality check on the appraiser for the proposed first lien refi. And the second lien holders have zero reason to be less than conservative on their own AVMs.

I would hear some absurd rationales for why someone with such a high income had so little savings.

Yep. The stories got worse and worse, too. My faves were always the ones where the excess income was being put to use in "productive but illiquid investments." You know, like the brother-in-law's herbal supplements marketing business.

The ones that really sent me over the top were allowing reserve requirements to be met with proceeds from a cash-out. I've been in a jillion bitter battles over that one.

Fannie doesn't have a front and back end ratio, just one ratio?

That is correct. Fannie hasn't used a front ratio in years and years. I can't quite remember when they did that. I have 1999 in my head, but don't quote me on that.

Wow, that is insane. You could pay off all your bills and look like a good citizen, get 45% DTI and leverage up again.

Well, yes, but people don't tend to do that. It does require some cash-flow to do it with.

They expect underwriters to take an actual look at the actual credit report when you have a "no other debt" borrower. Precisely to make sure that this isn't going on. Remember that the credit report shows all activity for the last seven years. You can spot this kind of thing.

The real reason they made this change is that they found in their database it didn't matter much to default probability what the house payment was. The only correlation with default probability is the total debt load.

In other words, a borrower who has no other debt and pays 40% of income for housing doesn't default any more frequently than a borrower who pays 22% of income for housing and 40% of income for total debt.

The problem was that underwriters wanted to give "compensating factor" benefit to borrowers with low HTI but high DTI, as compared to a borrower with a higher house payment and no other debt. So the elimination of the front ratio was more about being more conservative in that kind of case than less conservative.

Any borrower can increase debt after closing. That's a fact of life. That's why you set the ratio number where it is. But it's no reason to punish borrowers who live in high-cost areas and who therefore decide to buy old cars for cash and not run up credit cards, in order to be able to handle their mortgage payments comfortably. This whole "rule of thumb" about how everyone has a lower house payment and also has two cars and several credit cards comes out of a very "suburban" mentality.

I'm so happy for you I'm going to celebrate by listening to a CD I just found after misplacing it for at least three years, Carole King's "Tapestry".

Can you SUUUUREEEEE? Can you pic-nic? C'mon, c'mon and surrey down to a stone soul picnic . . .

That could only happen in Never Never Land.

I have never actually seen a piece of real estate that was better collateral for a loan than the Beatles catalogue would be. If the Gloved One had offered that as additional collateral, I might have made that loan . . .

Does #9 mean, for example, if a borrower has an ARM with an initial rate of 5.5%, with a cap of 9.5%, that the 45% DTI is calculated using the 9.5% rate? On #12, what is a "field review appraisal"?

9 means that if the loan is an ARM, you add the current index value to the margin, and if that is more than the start rate (which it typically is), you use that higher rate.

A field reveiw appraisal is not as elaborate as a full appraisal (it does not involve another interior inspection, among other things). The "field" part means, though, that it isn't just a review of an appraisal report performed by someone at a desk somewhere at the lender's office: it is performed by a licensed appraiser (indepedent of the original appraiser) out in the actual local market (the "field"). In other words, you get a second opinion.