The Federal National Mortgage Association will ease the restrictions placed late last year on home mortgages it will purchase, delegates attending the National Association of Home Builders' convention here were told.
David O. Maxwell, chairman of the association, which is known as Fannie Mae, said it decided to make "several refinements" in its underwriting guidelines after hearing "reservations and suggestions" from NAHB leaders.
The home builders' organization protested at the time the guidelines were announced last October that they were unnecessarily restrictive and would bar thousands of Americans from qualifying for home loans.
Fannie Mae, a federally chartered, shareholder-owned corporation, buys mortgages from lenders to provide cash for new loans. Fannie Mae then packages the mortgages and sells them or securities backed by them on the secondary market. Because Fannie Mae buys about 10 percent of all home mortgages sold in the country, most banks and savings and loans adopted the new rules.
Fannie Mae tightened its requirements on the kinds of loans it would buy as a result of heavy foreclosure losses during the economic hard times of the early 1980s. The association was losing $1 million every working day in 1981, but earned a profit in 1985, Maxwell said. Fannie Mae bought $21 billion in mortgages for its portfolio last year and issued $24 billion in mortgage-backed securities, for a total of $45 billion that "translates into more than 900,000 home mortgages," he said.
The changes announced here by Maxwell will change Fannie Mae's definition of long-term debt to include only the installment and revolving debt that extends beyond 10 months.
NAHB Executive Vice President Kent Colton called this revision the "most significant change" and welcomed all the changes announced by Maxwell. But Colton added that "we'll keep talking to Fannie Mae" about other underwriting guidelines to which the NAHB objects.
Other changes announced by Maxwell will permit sellers to pay more of the closing and financing costs than previously allowed, waive Fannie Mae's requirement that borrowers must make at least a 5 percent down payment in cash if a member of the immediate family makes a gift of at least 20 percent of the sales price and streamline requirements to speed approvals for loans with low loan-to-value ratios.
Maxwell also announced a "clarification" of one of its underwriting guidelines he said was widely misunderstood. The guideline required lenders to keep the monthly housing expenses of a home buyer seeking a fixed-rate mortgage from exceeding 25 percent of monthly income and monthly debt payments from topping 33 percent unless there was "justification" for doing so. This standard never was "set in concrete," Maxwell said. "We will allow lenders to go as high as 28/36 percent for the two categories if there is sound justification for doing so."
Fannie Mae "continues to reject the mechanistic and unrealistic approach of cash-equivalent appraisals" of equivalent properties, Maxwell said in what he termed a clarification of his organization's policy.
Appraisers will be required to report the amount of "sales concessions" made by sellers of comparable properties when the information is reasonably available. "Then they should adjust values based on the actual effect such concessions have on those values," he said.
The underwriting changes will be included in lender guides that Fannie Mae will distribute next week, a spokesman said.