Fannie Mae provides flexibilities to standard limited cash-out refinance policies for borrowers who have been impacted by a natural disaster. These guidelines:
permit the refinance of non-purchase money subordinate loans obtained to finance disaster-related property repairs, and
provide for a higher cash-out amount to reimburse borrowers for documented out-of-pocket expenses related to disaster-related property repairs.
This topic outlines the specific eligibility requirements for these additional flexibilities.
These flexibilities may be applied to loans on properties located in any counties, cities, or parishes that are designated by the Federal Emergency Management Agency (FEMA) as eligible for Individual Assistance as a result of a natural disaster (these areas are referred to as “FEMA Disaster Areas”).
These guidelines are applicable only to loans secured by the borrower’s principal residence, and may not be used in connection with second homes or investment properties.
A borrower may obtain:
a limited cash-out refinance to consolidate non-purchase money subordinate financing used for repair of disaster-related property damage to his or her principal residence. To be eligible, the subordinate financing, including any draws on an existing HELOC, must post-date the disaster. However, the borrower may pay off the entire HELOC through the limited cash-out refinance, provided that a portion of the amount was used for disaster-related expenses to repair property damage to the principal residence.
cash-out for reimbursement of documented out-of-pocket expenses for the completed repair of disaster-related property damage to his or her principal residence in an amount not to exceed the lesser of 10% of the balance of the new refinance loan or $15,000.
All existing guidelines and requirements for limited cash-out refinance transactions listed in this section continue to apply, including those for Texas 50(a)(6) loans (see B5-4.1-01, Texas Section 50(a)(6) Loans).
The lender must document that the subordinate financing (or a portion of the HELOC) or the entire requested cash-out amount represents funds used for completed disaster-related property repairs.
Generally, documentation includes copies of receipts, work orders, canceled checks, etc., related to the cost of materials and labor.
The borrower may not receive any reimbursement for amounts representing his or her sweat equity in connection with the repairs.
Note: All documentation must post-date the disaster and be directly related to completed repairs of damage to the property resulting from the disaster.
Certain messages on the DU Underwriting Findings Report will not apply to loans originated under the disaster-related limited cash-out refinance requirements.
When the loan complies with the requirements of this section, lenders may disregard the following messages:
This case is ineligible because the amount of cash taken out of the subject property equity exceeds the limit of 2% of the loan amount or $2,000 for limited cash-out refinances.
If any subordinate lien that was not used to acquire the subject property is to be paid off with first mortgage proceeds, the loan is ineligible as a limited cash-out refinance. The loan must be resubmitted as a cash-out refinance.
If subordinate liens are being paid off with the first mortgage proceeds, obtain written documentation that the subordinate lien was used to acquire the subject property.
Fannie Mae will grant the lender the limited waiver of underwriting representations and warranties for these loans, including those mortgages that receive an Approve/Ineligible recommendation, provided the loan meets the requirements contained in this section as well as those contained in A2-2.1-04, Limited Waiver and Enforcement Relief of Representations and Warranties for Mortgages Submitted to DU.
The appraisal for the property must follow standard requirements contained in Chapter B4–1, Appraisal Guidelines.
Those guidelines allow an appraisal to be based on the “as is” condition of the property provided there are no conditions that affect the safety, soundness, or structural integrity of the property. If those conditions do exist, the property must be appraised subject to completion of the specific alterations or repairs (“as repaired”) and a completion report must be obtained from the appraiser prior to delivery of the mortgage to Fannie Mae.
Loans originated in accordance with this section must be delivered to Fannie Mae no later than two years from the date of the disaster declaration by FEMA.
Loans delivered under these guidelines must include SFC 416 as part of the delivery data.
The table below provides references to the Announcements that have been issued that are related to this topic.