Fannie Mae to increase LTV ratios for purchase, cash-out refi loans on multi-unit properties in DU

The GSE detailed the change in the latest update coming to its Desktop Underwriter system in November

Fannie Mae on Thursday announced that its Desktop Underwriter (DU) system will include new changes to the maximum allowable loan-to-value (LTV) ratios for two- to four-unit, principal residence, purchase and limited cash-out transactions, as well as other updates to further align the system with recent changes to the Selling Guide.

The new DU update will be rolled out to the system during the weekend of Nov. 18, the company said.

“To expand access to credit and provide support for affordable rental housing, the maximum allowable LTV, CLTV and HCLTV ratios for two- to four-unit, principal residence, purchase and limited cash-out transactions will be updated to 95%,” the update notes read. “This change will not apply to high-balance mortgage loans and loans that are manually underwritten.”

Currently, the maximum allowable LTV on a purchase and limited cash-out refinance for a two-unit property is 85% for both fixed- and adjustable-rate mortgages, and 75% for a three- or four-unit property. These levels and their updates to 95% also apply equally to requirements for the standard, HomeReady and HomeStyle Renovation programs.

Fannie Mae’s maximum LTV ratio for a single-unit home with a fixed-rate mortgage remains unchanged at 97%.

Another update includes the DU system now being able to identify HomeStyle Energy loan casefiles using the “Mortgage loan will finance energy-related improvements” indicator as long as the loan is “also a HomeStyle Renovation loan,” the update notes read.

According to a June announcement about prior Selling Guide updates, eligibility requirements for limited cash-out refinances were revised to say that “at least one borrower on the new loan must be a current owner of the subject property (on title) at the time of the initial loan application,” according to the update notes.

In the latest DU version, the message on all limited cash-out refinance transactions will be updated to “remind lenders of this requirement, and to remind lenders that if the property is currently listed for sale, it must be taken off the market on or before the disbursement date of the new mortgage loan,” the notes read.

Earlier this week, Fannie Mae released its October 2023 update to the Selling Guide aiming to reflect changes in the mortgage industry, its surrounding regulatory environment and Fannie Mae policy positions. One key update is a change to the documentation requirements for rental income that is used in a qualifying decision.

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