Written by Bill Lambropoulos

Update: On December 5, 2006, Fannie Mae published Announcement 06-23, delaying the effective date of the changes published in Announcement 06-04 from June 1, 2006 to January 1, 2007.  At the same time, Fannie Mae made additional changes to their anti-predatory lending policies as set forth in Announcement 06-04.  Specifically, Part VII, Section 104.15 was further revised to read as follows: "Fannie Mae will not purchase or securitize a mortgage loan if the "annual percentage rate" or "points and fees payable by the borrower" (as each such term is calculated under HOEPA) exceeds the maximum thresholds described under HOEPA.  This prohibition applies to unsecured manufactured housing loans and all types of mortgage loans that finance owner-occupied primary residence properties, including purchase money mortgage loans, refinance transaction mortgage loans, and closed-end subordinate liens.  This prohibition does not apply to mortgage loans secured by investment properties or second homes, open-end home equity lines of credit, or reverse mortgage loans."  To view a copy of Fannie Mae Announcement 06-23, click here.

It has been Fannie Mae’s stated policy for quite some time now not to purchase or securitize any mortgage where total points and fees exceed five percent of the mortgage amount, or any mortgage loan that is subject to the requirements of the Home Owner Equity Protection Act of 1994 (“HOEPA”). In an announcement dated April 14, 2006, Fannie Mae is, in its own words, “now expanding its policy prohibitions to include certain mortgage purchase eligibility requirements based on housing goals regulations issued by [HUD] to which Fannie Mae is subject,” effective for all loans delivered to Fannie Mae on or after June 1, 2006.

Click here to view a copy of Announcement 06-04.

Points and Fees:

Currently, Part VII, Section 104.11 of the Fannie Mae Selling Guide reads as follows:

“We will not purchase or securitize a mortgage if the total points and fees charged to the borrower are greater than five percent of the mortgage amount, except when this limitation will result in an unprofitable origination for the lender (for example, because of the small size of the mortgage).”

Effective June 1, 2006, Section 104.11 is amended as follows:

“Fannie Mae will not purchase or securitize a mortgage if the total points and fees charged to the borrower exceed the greater of five percent of the mortgage amount or a maximum dollar amount of $1,000.”

With this change, Fannie Mae has provided much needed clarity to the “unprofitable origination” exception to its maximum points and fees limitation policy. In effect, for loan amounts less than $20,000, the points and fees limitation is $1,000 (for any loan amount less than $20,000, $1,000 will always be greater than five percent of the loan amount). This change brings Fannie Mae’s maximum points and fees limitations into direct conformity with Freddie Mac’s previously stated maximum points and fee limitations.

HOEPA Mortgages:

Currently, Part VII, Section 104.15 of the Selling Guide provides as follows (with respect to HOEPA loans):

“Additionally, a lender may not deliver to Fannie Mae certain mortgage loans that … are subject to the requirements of the Home Ownership and Equity Protection Act of 1994.”

Effective June 1, 2006, Section 104.15 is amended as follows:

“Fannie Mae will not purchase or securitize a mortgage if the “annual percentage rate” or “points and fees payable by the borrower” (as each such term is calculated under HOEPA) exceeds the maximum thresholds described under HOEPA. This prohibition applies to all types of mortgages (including purchase money mortgages and refinance transaction mortgages), but does not include reverse mortgages.”

HOEPA, by its terms, does not apply to a “residential mortgage transaction,” defined essentially as a loan to finance the purchase or construction of a consumer’s principal dwelling. With this change, Fannie Mae makes it clear that it will not purchase or securitize any mortgage that exceeds the applicable HOEPA points and fees or APR thresholds; even if the loan itself is not actually subject to HOEPA points and fees or APR limitations. This expansion of coverage would appear to cover not just purchase money loans, but also construction loans and loans secured by other than a borrower’s principal dwelling (e.g., a second home or investment property).

Bill Lambropoulos is the General Counsel and Director of Compliance and Legal Services at Document Systems, Inc.