I heard a rumor today……all reduced documentation mortgages will be eliminated by FNMA and FreddieMac by the middle of this month (August, 2008).  Although the no-income verification loans have been gone for some time, lenders were still allowing “short-cut” loans.

A short-cut loan is one where a borrower with a credit score over 700, might only be required to verify active employment and NOT income.  FNMA and Freddie believed that if your score was high enough then you probably paid your bills on time. Well, not anymore…..

Stated income loans are now around for conforming loans but not Jumbo-Conforming (the new temporary loan amounts) nor Jumbo loans. Limited documentation loans are being eliminated soon.

So, where does that leave the borrower? Full documentation, provide your paystubs, W-2’s or last 2 years tax returns, no matter what your credit score is no exceptions!!

Of course, you can always look around and search for a lender that will do it, but what are their parameters?  I will verify this by the end of this week and re-post.

Dale Robyn Siegel

A few weeks ago, I started conversations with freelance writer, Lora Shinn. She was doing an article about people that need to relocate, but cannot sell their current homes. What are the pros and cons of renting versus…uh…just walking away?

We went through many points and had a long discussion via email and in person.  We had a lovely chat about New York, Seattle and travel.  Down to business, Lora asked me if I had heard about some new FNMA rule called the “lock and leave” requiring 6 months (payments) of savings for both the old home and new home. This would be when the borrower was keeping and renting the old house while moving into the new home.

In my research on the new PMI rules coming out in August, I came upon what she was referring to.  (I did reach out and email Lora the info.  Her article is way more extensive than my blog sound bite. When received, I will post a link to her article.)

Here is the nutshell:

PMI (Private Mortgage Insurance) is changing the guidelines for rental income.  When a current principle residence is being converted to a rental property, 75% of the rental income can be used to offset the mortgage payment, only if there is 30% of the equity left in the property.

Translation please!

You can still rent out your old house and get a mortgage to buy a new one if:

• You only have a mortgage for 70% LTV of the old house
• You can prove the value by an appraisal (you pay for it)
• You have a NOTARIZED lease from the tenant
• You have a copy of a canceled security deposit check from them deposited into your account

And the clincher…….

You have 6 months payments of the old mortgage payment and the NEW mortgage payment in the bank

There are some caveats and please ask your lender for their specific guidelines. That’s what I know and I am telling you.  Wait for Lora Shinn to give you the entire lowdown.

Dale  Robyn Siegel