Fannie Mae Introduces ‘Adverse Market’ Loan Fees, Reduces Financing in Areas Hardest Hit by Price Declines

Fannie Mae said late Wednesday that it is making numerous changes to its lending policies in response to continuing turmoil in the housing and mortgage markets, including introducing a new ‘adverse market delivery charge’ for all mortgages delivered to the GSE by originators.

From the lender announcement:

Fannie Mae is implementing a new upfront charge of 0.25% that will apply to all: (1) whole loan mortgages purchased on or after March 1, 2008; or, (2) mortgage loans delivered into MBS with issue dates on or after March 1, 2008. The process for calculating and drafting this charge will be similar to how LLPAs (typically charged for specific loan-level credit risk characteristics) are calculated and drafted today. The charge will also apply to loans committed under Long-Term Standby Commitments on or after March 1, 2008.

This will hit the bottom line of every originator — making conforming loans more expensive to originate, even for those operating under negotiated terms.

Fannie also said it will restrict the maximum loan-to-value (LTV) ratio and combined loan-to-value (CLTV) ratio for properties located within a declining market to five percentage points less than the maximum it would otherwise permit for a given loan product. That means a 95 percent LTV program would see availability restricted to 90 percent LTV, for example.

It said the restricted lending policy would be enforced whenever an appraisal noted a property as being in a declining market, but also said it “strongly urged” lenders not to rely solely on the information reflected in the appraisal and to validate housing price trends using other sources as well.

The GSE said in a statement the change was “necessary in light of current market conditions,” and would go into effect January 15.

Fannie Mae also said in a seperate lender announcement released Wednesday that it was tightening restrictions on purchase loans, requiring that borrowers in purchase money transactions not recieve any cash back beyond reimbursements for overpayment of fees, refunds for costs paid in advance, and/or credits for any real estate taxes.

The bottom line: it’s getting a whole lot harder for borrowers to get a conforming loan.