Selling Guide

Published October 2, 2019

B5-7-01: High LTV Refinance Loan and Borrower Eligibility (08/07/2018)

This topic contains information about the following aspects of the high LTV refinance option, including:

Overview

The high LTV refinance option is designed for Fannie Mae borrowers who are making their mortgage payments on time, but whose LTV ratios exceed the maximum allowed for standard limited cash-out refinance transactions. Lenders are not required to evaluate borrower creditworthiness except for the requirements specifically stated in the high LTV refinance topics.

The current servicer or a new servicer may refinance the existing loan. Lenders may not solicit Fannie Mae loans for refinancing except in accordance with standard requirements in Lender Solicitation for Refinancing found in B2-1.2-04, Prohibited Refinancing Practices.

Existing Loan Requirements

The following table provides requirements for the existing loan that is to be refinanced under the high LTV refinance option.

The existing loan must....

be a first lien, conventional mortgage loan owned or securitized by Fannie Mae.

have a note date on or after October 1, 2017.

have seasoning of at least 15 months - meaning at least 15 months have passed from the note date of the existing loan to the note date of the new loan.

For example, if the note date on the existing loan is January 1, 2018, the note date of the new loan must be no earlier than April 1, 2019.

Note: Loans that are part of a risk-sharing structure (for example, credit risk transfers) are eligible to be refinanced under the high LTV refinance option.

Conversely, the following loans are not eligible for refinance under the high LTV refinance option:

  • existing DU Refi Plus TM or Refi Plus TM loans;

  • loans that are subject to outstanding repurchase demands; or

  • loans that are subject to recourse, repurchase agreement, indemnification, or another negotiated credit enhancement required at origination for eligibility purposes are not eligible unless

    • the new loan is also subject to a credit enhancement that meets eligibility requirements, or

    • such credit enhancement is not required for eligibility purposes on the new loan.

New Loan Requirements

The following table provides requirements for the new loan resulting from the refinance under the high LTV refinance option.

The new loan must...

have an application date on or after November 1, 2018.

be either:

  • a fixed-rate loan; or

  • an ARM that refinances an existing ARM, with the new ARM having a minimum five-year fixed rate term.

have a term not to exceed 30 years.

meet current general or high-balance loan limits, as applicable, at the time of loan delivery.

have a newly executed Uniform Residential Loan Application (Form 1003/1003(S)) for the borrower(s) with all information completed, including borrower income, employment, and assets.

provide a benefit to the borrower in the form of at least one of the following:

  • a lower P&I payment;

  • a lower interest rate;

  • a shorter amortization term; or

  • movement to a more stable product (for example, from an ARM or step-rate modification to a fixed-rate loan).

The new loan cannot be originated pursuant to Texas Constitution Section 50(a)(6). Temporary interest rate buydowns are not allowed.

The standard limited cash-out refinance requirements are modified for high LTV loan transactions. The new loan amount is limited to

  • the payoff of the UPB of the existing first mortgage loan being refinanced (including accrued interest);

  • the financing of closing costs, prepaid items, and points up to $5,000 total for the new loan; and

  • cash back to the borrower up to $250. Excess proceeds may be applied as a curtailment on the new loan.

Lenders may provide an incentive to the borrower(s) in the form of a payment to pay off a portion of the existing loan being refinanced provided the following:

  • no repayment is required,

  • the payment is reflected on the settlement statement as a lender credit, and

  • because any such reduction of the existing loan balance will impact the LTV ratio as it applies to the calculation of the new loan amount, lenders are advised to use caution as incentives have the potential to reduce the LTV ratio below the minimum allowed for this option.

See B3-4.1-02, Interested Party Contributions (IPCs), for additional requirements that apply to lender incentives.

Borrower Eligibility

Generally, the borrower(s) on the loan being refinanced (or the current borrower(s) if the existing loan was assumed) must be identical to the borrower(s) on the new loan. However, an existing borrower may be excluded from the new loan for either of the following:

  • the remaining borrower(s) meets the mortgage payment history requirements and provides evidence that they have been making the payments on the existing loan from their own funds for the most recent 12 months prior to the application of the new loan, or

  • due to the death of a borrower. Evidence of the deceased borrower’s death must be documented in the loan file.

If this criteria cannot be met, the new loan must be underwritten in accordance with the Alternative Qualification Path. See B5-7-03, High LTV Refinance Alternative Qualification Path for additional information.

New borrowers may not be added to the new loan refinanced via the high LTV refinance option. Additionally, if the loan being refinanced was assumed by the current borrower(s) prior to the refinance, the current borrowers must have been qualified for the existing loan in accordance with the requirements of the Servicing Guide.

Borrowers who have applied for or received a modification are eligible for refinancing provided the following:

Property Eligibility

All Fannie Mae-eligible property types are permitted for refinance under the high LTV refinance option.

For properties in condo, co-op, or PUD projects, all project review requirements are waived with the exception that the lender must confirm the project is not a condo or co-op hotel or motel, houseboat project, timeshare, or segmented ownership project. For assistance in determining whether the project is a condo or co-op hotel or motel, see B4-2.1-03, Ineligible Projects.

The lender must obtain property and flood insurance in accordance with this Guide.

LTV Ratio Requirements

For the new loan to be eligible, the following table provides the minimum LTV ratio requirements for both fixed-rate and ARM loans.

Occupancy Type Units Minimum LTV
Principal Residence 1 97.01%
2 85.01%
3-4 75.01%
Second Home 1 90.01%
Investment Property 1-4 75.01%

The loan being refinanced and the new loan do not have to represent the same occupancy. The occupancy of the subject property may have changed by the time of the high LTV refinance transaction.

There are no maximum LTV, CLTV, or HCLTV ratios for fixed-rate loans. There is a maximum LTV ratio of 105% for ARM loans, but no maximum CLTV or HCLTV ratio. For comprehensive requirements see the Eligibility Matrix.

Eligible Subordinate Financing

New subordinate financing is only permitted if it replaces existing subordinate financing. In addition, the existing subordinate financing

  • may not be satisfied with the proceeds of the new loan, but

  • may remain in place as long as it is resubordinated to the new loan, and

  • may be simultaneously refinanced as long as the new subordinate lien loan amount does not exceed the existing UPB.

Other subordinate financing requirements described in B2-1.1-04, Subordinate Financing are not applicable.

Note: Although standard Fannie Mae policy prohibits subordinate financing on co-op share loans, an exception is permitted for high LTV refinance loans as long as the existing subordinate lien is subordinate to the new co-op share loans.

Leasehold Estates Eligibility

The term of the leasehold must run for at least five years beyond the maturity date of the mortgage, unless fee simple title will vest at an earlier date in the borrower. The lender is not required to perform any additional review of the leasehold terms.

Multiple Financed Properties

There are no limits on the number of financed properties the borrower may own. The additional eligibility requirements for borrowers with multiple financed properties in B2-2-03, Multiple Financed Properties for the Same Borrower do not apply.

Related Announcements

The table below provides references to the Announcements that have been issued that are related to this topic.

Announcements Issue Date
Announcement SEL-2018-06 August 07, 2018