Fannie Mae Releases DU Version 9.0! What does that mean for my HARP refinance?

Erik Sandstrom

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I would like to post Fannie Mae's most recent update to desktop underwriting as it outlines very important aspects and changes regarding the HARP refinance. You can read the full article here: https://www.efanniemae.com/sf/guides/duguides/pdf/current/rndodu90.pdf


Here's the most important changes that I see:

1. Retirement of Expanded Approval Recommendations

With DU Version 8.3, EA-II and EA-III recommendations were no longer returned for loan casefiles submitted to DU, except those underwritten as DU Refi Plus. With DU Version 9.0, the retirement of the Expanded Approval (EA) recommendations will be completed and the EA-I recommendation will no longer be returned. As the Refer with Caution/IV recommendation is also considered an EA recommendation, it will be replaced with a recommendation of Refer with Caution.

EA-I, EA-II, and EA-III recommendation levels will continue to be returned for DU Refi Plus loan casefiles; however, the number of DU Refi Plus loan casefiles that receive an Approve recommendation will be expanded due to an update to the credit risk assessment.
The following are the recommendations that will be returned with DU Version 9.0: DU Recommendations
DU Refi Plus Recommendations
Approve/Eligible
Approve/Ineligible
Approve/Eligible
Approve/Ineligible
Refer with Caution
EA-I/Eligible
EA-I/Ineligible
EA-II/Eligible
EA-II/Ineligible
EA-III/Eligible
EA-III/Ineligible
Refer with Caution
Out of Scope
Out of Scope
Error
Error

What does this mean? This means that there will be no more Expanded Approvals...

Now I don't really know what to think of this, whether it be a good thing or a bad thing. There were lenders offering the HARP refinance under Expanded Approval which required Manual Underwriting. This means there will no longer be any manual underwriting what-so-ever, you must receive "Approve/Eligible" Feedback to move forward with the new loan.

The downside to this is now, we won't know what risk level you are! In many circumstances I have had clients receive EA-1 and EA-2 feedback which in certain cases have been easily overcome with adjusting the new term, additional assets....etc. Now that we won't know what risk level you have, it's going to be hard judging what needs to be fixed in order to obtain the new refinance. This also means that all the borrowers who would have been able to get financed with Expanded Approval (Manual Underwriting) lenders that they will no longer be able to? This is what I read, and there is more....


2. Updated Credit Risk Assessment
Fannie Mae’s mission is to help eligible borrowers have access to mortgage credit to purchase homes they can afford over the long term. As part of normal business operations, DU is regularly reviewed to determine whether its risk analysis is appropriate based on new data and loan performance information. As a result of this work, DU Version 9.0 will include an update to the DU credit risk assessment and eligibility requirements.
The DU Version 9.0 credit risk assessment will consider the probability of future serious delinquency, rather than default. Based on an analysis of recent loan casefiles submitted to DU, the new credit risk assessment is expected to have a minimal impact on the percentage of Eligible recommendations that lenders receive today.

DU Version 9.0 will evaluate loan casefiles using the same risk factors currently evaluated in DU Version 8.3.

What I see here is more overlays Fannie Mae may be implementing into Desktop Underwriter but it looks like it could help certain borrowers show they have the ability to repay the new loan.


3. Simultaneous refinance of subordinate liens
DU Version 9.0 will be updated to allow for the simultaneous refinancing of a subordinate lien on DU Refi Plus loan casefiles, provided that the new loan amount does not exceed the existing unpaid principal balance of the subordinate lien.

This is GREAT! What this means is the HARP Refinance will now allow second mortgages the ability to be combined? I'm really curious about this as I have been subordinating 2nd mortgages to date. I'm going to have to find more information about this, whether it will be eligible for Same Servicer or also Open Access. I'll keep everyone updated, as always :).
 

Erik Sandstrom

Mortgage Expert - Call 1-619-379-8999
Staff member
Loan Safe Mortgage
Jan 14, 2011
2,111
182
63
San Diego, California
www.loansreduced.com
Ok as DU version 9.0 get's ready to launch, I have to clarify one small point in my last post.

Simultaneous refinance of subordinate liens
DU Version 9.0 will be updated to allow for the simultaneous refinancing of a subordinate lien on DU Refi Plus loan casefiles, provided that the new loan amount does not exceed the existing unpaid principal balance of the subordinate lien.

I read this wrong, this would be done through a institution who offers secondary financing and would have the be simultaneously closed with the 1st mortgage. It is however a significant improvement to the program but which lending institutions will be honoring this? Will it be the current lien holder or a new bank? I'm sure that it's a very risky product to offer.
 

Moe Bedard

Call 1-800-779-4547
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Loan Safe Mortgage
Aug 10, 2007
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Hi Erik,

How many lenders do you deal with now that will extend HARP loans to your clients?

Are the getting easier or harder?
 

Erik Sandstrom

Mortgage Expert - Call 1-619-379-8999
Staff member
Loan Safe Mortgage
Jan 14, 2011
2,111
182
63
San Diego, California
www.loansreduced.com
Hi Erik,

How many lenders do you deal with now that will extend HARP loans to your clients?

Are the getting easier or harder?
Hi Moe,
Hope all is well with you, to answer your question - we are a direct lender that's certified by Fannie Mae & Freddie Mac to offer HARP refinances. We are also Ginnie Mae certified which gives us access to great programs and pricing with FHA. Recently we have also opened up a portfolio jumbo product up to 1.5 million that seems to be great. From what I've been hearing from mortgage brokers, they have been having a hard time shopping through different lenders to get HARP refinances completed. We are able to deliver these HARP refinances direct to Fannie/Freddie on the secondary market and we hold the servicing rights on the new loans. That may be why we're able to deliver/fund these loans much easier and faster than most other lenders.

Recently in the past week I have experienced many more approvals through the automated underwriting system due to a recent release of the program. Both Fannie Mae's system Desktop Underwriter and Freddie Mac's system Loan Prospector have been very responsive in approving borrowers that really should qualify. Before this release the system analyzed data in the area of foreclosure statistics and matched them to the property seeking a refinance. If the system believed that it was a high risk of foreclosure they wouldn't lend on it. The system now is looking more at the borrower, if the borrower has a strong financial background, has good income, assets...etc it seems are getting approved much more than before.

I sincerely hope that this program progresses into HARP 3 which may allow the non-Fannie & Freddie backed clients the ability to refinance. I know many people that are hoping for a program like this to get released. It's much more beneficial to retain theses assets rather than foreclosing as long as a borrower has the ability to repay the debt at a lower interest rate.