February 09, 2023

FNMA Selling Guide Update: Cash-out Refinance Eligibility

Read more below!

February 09, 2023

FNMA Selling Guide Update: Cash-out Refinance Eligibility

On February 1, 2023, Fannie Mae updated its eligibility policy for cash-out refinance transactions to require that any existing first mortgage being paid off through the transaction be at least 12 months old as measured from the note date of the existing loan to the note date of the new loan.

This change is in addition to the existing requirement that at least one borrower be on title to the subject property for at least six months prior to the disbursement date of the new loan, unless subject to one of the ownership exceptions permitted in the Selling Guide.

Lenders are encouraged to implement these changes immediately but must do so for all cash-out refinances with note dates on and after Apr. 1, 2023. The Desktop Underwriter® (DU®) message issued on cash-out refinance loan casefiles will be updated in a future release to reflect the updated requirement.

Freddie Mac previously made a similar announcement. Freddie Mac’s requirements will be effective for cash-out refinance transactions with settlement dates on or after March 7.

Source: Selling Guide Announcement (SEL-2023-01)

PPDocs Note: Our system does not capture how a loan is underwritten, but clients will be warned about this new requirement with the following audit that will begin to appear in the coming weeks:

For loans underwritten as FHLMC/FNMA “Cash-Out Refinance” with settlement dates on or after March 7, 2023 (FHMLC) or note dates on or after April 1, 2023 (FNMA), any existing first lien mortgage must be at least 12 months old if paid off with loan proceeds.

It is important to remember that a Fannie Mae or Freddie Mac “cash out refinance” is an underwriting category under their respective Selling Guides and is not necessarily the same as a Texas Home Equity 50(a)(6) loan as defined under Texas state law. Many loans that must be underwritten as “cash out refinances” for Fannie or Freddie underwriting purposes do not involve the borrower getting actual equity out of the property.

Frequently Asked Question

Question: I have two questions. Question 1) Does TRID require separating an appraisal management company (AMC) fee and an appraisal fee? Question 2) I know an appraisal fee is excluded from the finance charge, but is an AMC fee also excluded from the finance charge?

Answer 1: The AMC fee does not have to be separately itemized when disclosed. Section 1475 of the Dodd-Frank Act permits the optional disclosure of the charges made by an AMC but does not require separate itemization. If a lender chooses to not separate them, then they would list the entire fee as paid to the AMC.

From the preamble to TRID:

Several national trade association commenters representing real property appraisers, as well as a number of individual appraiser commenters, stated that any charge for an appraisal management company (AMC) should be required to be separately itemized in § 1026.37(f)(2). As noted in the Bureau’s proposal, section 1475 of the Dodd-Frank Act permits the optional disclosure of the charges made by an AMC, but does not require separate itemization. See 77 FR 51116, 51134 (August 23, 2012).

Answer 2: Under 1026.4(c)(7)(iv), property appraisal fees are often excluded from the finance charge. When an AMC does more than simply order the appraisal, it would also be excluded from the finance charge. For example, when an AMC also reviews the appraisal prior to delivery for completeness, etc., then the AMC fee would not be a finance charge.

1026.4(c)(7)

(c) Charges excluded from the finance charge. The following charges are not finance charges:

…snip…

(7) Real-estate related fees. The following fees in a transaction secured by real property or in a residential mortgage transaction, if the fees are bona fide and reasonable in amount:

…snip…

(iv) Property appraisal fees or fees for inspections to assess the value or condition of the property if the service is performed prior to closing, including fees related to pest-infestation or flood-hazard determinations.