Continuing on with part two of our blog series about the Fannie Mae Day 1 Certainty program, today we focus on the collateral section of the Day 1 program. Years ago Fannie Mae put in place a property inspection waiver (PIW) offer on well qualified borrowers. The advantages of this offer was lower costs to the borrower (no appraisal fee) and faster underwriting due to eliminating the waiting period for the appraisal to be completed. This PIW was the only way to get property value relief until now.
Property Value Reps & Warrants Relief
Now lenders have two ways to take advantage of property value reps & warrants relief with Day 1, meeting the goal of “lower costs, faster operations, and more closed loans” we discussed in part 1 of the blog.
Here are the two possible paths to property value reps & warrants relief
Pathway One: Collateral Underwriter (CU) scores of 2.5 and lower
Over the last several years both Fannie Mae and Freddie Mac have required all appraisals to be submitted to the uniform collateral data portal (UCDP). At the same time the change requiring most appraisals be completed using the uniform appraisal dataset (UAD) combined with reporting all those same appraisals to the UCDP has given the agencies over 20 million appraisals with detailed information about the properties to review and analyze. Fannie Mae has been using this data to build the CU tool to asses the accuracy of the value of properties much like they use DU to asses the credit risk for the borrowers.
In my discussions with Fannie Mae researching this topic, Fannie Mae has been using this tool for years to help get an accurate property value on their own real estate owned. This allowed them to sell the properties for maximum value to negate losses from foreclosure. CU became more and more refined using all the data which became a great asset to sell their own inventory much more efficiency and accurately. So in essence they were their own guinea pig testing out CU.
Now with CU fined tuned and backed by millions of appraisals for data support, DU 10 will offer a rep and warrant relief of properties that DU and meets a CU score of 2.5 or less. Due to Fannie Mae’s confidence in the CU tool, relief will work on any 1004 or 1073 appraisal that scores a 2.5 or lower. Now there are many more details to what appraisals will meet the CU waiver. So instead of copying the Fannie Mae announcement here, I will link the F.A.Q. page below so you can get all the details right from the source.
Pathway Two: Fannie Mae Enhanced PIW
This part of the improved relief we are much more familiar with, that is the “magic” PIW! The new enhanced PIW has the following improvements effective December 10, 2016.
- Works on limited cash out and some cash out refinances (no purchases)
- LCOR up to 90% on primary and second homes 75% on investments
- Cash out up to 75% on primary homes and 60% for second homes and investments
- Single family residence and condos
- Logic for PIW is now tied to property value not to credit decision
- Eligible on high balance loans
Check out this link that shows more the differences between the old PIW and the new Enhanced PIW that went into effect on December 10, 2016.
That’s all for part 2, next week we will go over the income and asset potion of the Day 1 program!