Want to cash in on cash-out re-fis? Hurry

Click on our Advertisement

This concerns some major lenders who take a close look at their risk factors. Fannie Mae, the nation's largest buyer of existing mortgages, made an intensive study of cash-out refinance loans a few months ago. They determined that the added risks incurred with cash-out refinance mortgages justify changes in their policies. The newly revised Fannie Mae polices will be affective Feb. 1. This will apply to most refinance mortgages processed by primary lenders nationwide.

"Clearly, refinance mortgages are an important part of the mortgage finance process," it was stated in a Fannie Mae report. "Consumers not only are refinancing more often, but are often electing to cash out some of their equity as well.

"Indeed, the relative share of refinance business that involves cash-out funds has grown, as has the amount of equity that consumers are taking out. Over the years, research indicates that some policy and pricing changes are warranted to assure that we adequately address the risks associated with this type of business."

Therefore, beginning in February Fannie Mae will only accept cash-out mortgage loans that include the following:

- It will only pay off the outstanding principal balance of an existing first mortgage.

- It can also pay off the principal balance of any subordinate mortgage that was used in whole to acquire the property.

- It can finance the closing costs (including prepaid expenses) and provide cash back to the borrower in an amount no more than the lesser of 2 percent of the balance of the new refinance mortgage or ,000.

"These changes align our eligibility requirements more closely with the risk profile of the particular mortgage transaction," the Fannie Mae report noted. "Lenders are cautioned that appraisals in such transactions should be scrutinized with particular care to ensure that the value conclusions are solidly supported by appropriate comparables."