Fannie Mae has changed their definition of a Limited Cash Out loan in their latest selling guide (SEL-2012-14).
This will be effective with all applications dated March 1st, 2013 and after.
The changes are…
1) If the borrower finances the payment of real estate taxes for the subject property in the loan amount, but is not escrowing, the loan will be deemed cash out.
2) If the borrower finances the payment of real estate taxes that are more than 60 days delinquent, the loan will be deemed cash out, and the borrower will be required to escrow on the loan. (This is regardless of state law).
Note: The escrow requirements do not apply to DU Refi Plus loans (Fannie’s HARP).
There are two big ways these changes could affect you…
1) Pricing for cash out loans is a bit worse than a normal rate/term refinance loan.
2) Switching a loan to a cash out loan can affect the maximum loan to value ratio limits. In other words a 95% rate and term refinance loan wouldn’t work as a cash out loan. The LTV would have to be lower to get approval for many programs.
That’s it for today!
Brett
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