Do you remember when you were in fourth grade, and you confidently volunteered the answer to an important question in class and got it wrong?

That’s how I felt all day yesterday.

After having some push-back from other mortgage professionals through the Realtors I’ve been talking to, I dug in and hauled out the new FNMA guidelines, the release notes to the new underwriting system, and read them. Thought about them, and read them again.

On the face of it, one would think I was wrong in my gallop through the countryside yelling “The British are Coming!” (I really wanted to write “gallop through the Countrywide,” but it’s a bad pun.)

On the face of it, we frequently take away poor or partial impressions. On the face of it, the Fannie Mae regulations and release notes say that they will make loans to non-owner condo buyers, and to cash out equity from non-owner investors.

However, the regulations suggest that for the first time, Fannie Mae’s underwriting system is going to LAYER risk factors - rather than just taking the biggest one. Their announcement notes that condos are an increased risk, cash out loans are an increased risk, duplexes, triplexes and quads are increased risk, and investor loans (meaning, someone who’s not going to live in the property) are the biggest risks of all.

So, if they’re going to stack risk factors - then, condo + investor is risk plus highest risk. Triplex + investor is risk plus highest risk. Cash out + investor is very high risk plus highest risk. The loans that I was speaking of two days ago are now rated as very high risk, and “compensating factors” will be required for those loans to be approved. Sky high credit scores. Deep reserves (12 months plus.)

As I thought about this, I reflected that the Fannie Mae guidelines now say that they’ll accept a “level” approval for these types of loans, but I know of almost no lender who will do them, even with these compensating factors present.

That suggests in addition to the underwriting uncertainty of average borrower + risk + high risk layering, the lenders themselves may choose to not do any of these loans. Which is what we’ve started to see. Lenders are backing away from anything they are less than certain can be sold to Fannie Mae immediately.

From the perspective of someone thinking of buying, selling or marketing property - what this means is you really have to be associated with a lender who is completely on his or her game. Pre-approval letters are meaningless; closings are all that count.

Think of it like the big car dealer ad in the weekend newspaper. They SAY that they have the loaded Camry for $12,999 … but when you get there, they never do. That’s how you should view pre-approval letters for any transaction that is for an investor purchase of a condo, a 2-3-4 unit property, or what we used to think of as a sub-prime loan (no social security number, etc.)

So, I’m still galloping through the Countrywide (I couldn’t help myself, I’m sorry) yelling “The British are coming!” If you have a contract, a scenario or are going to make an offer and you’re just not sure whether it will fly, call me. We’ll give you our best game.