MORTGAGE LENDING: FANNIE MAE
APARTMENT FINANCE TODAY • NOVEMBER/DECEMBER 2007
Fannie Revamps DUS Guide
Borrowers can expect lower DSCRs,
less documentation.
By Jerry Ascierto
Fannie Mae has released
its new Delegated
Underwriting and
Servicing (DUS) guide, an
overhaul of the guidelines
by which its network of
affiliated lenders makes
loans.
The new guidelines should speed
up deal cycle times by at least a
week on most transactions, eliminating
many of the waivers that lenders
had to seek from Fannie Mae to get
deals done. In the past, a typical
Fannie Mae deal produced about
seven or eight waiver requests, for
things ranging from lower debt-service
coverage ratios (DSCRs) to a
reduced level of borrower documentation,
lenders report.
The new guidelines call for
reduced borrower paperwork and
enhanced underwriting conditions
for strong borrowers and strong
markets. For instance, Fannie Mae’s
standard DSCR was 1.25x, but as
conduit lenders began sizing loans
aggressively last year and early this
year, DUS lenders were routinely
requesting waivers to offer DSCRs
closer to 1.20x.
The new DUS guide has provided
a list of the nation’s stronger markets—
including New York City; Los
Angeles; San Francisco; Portland,
Ore.; and Seattle—where lenders can
routinely underwrite to as low as a
1.15x DSCR.
Transactions with 30 percent
equity or more can qualify for 10-
year interest-only loans in strong
markets. While such terms were
fairly common from conduit lenders
before the credit crisis, DUS lenders
had to procure waivers to offer those
aggressive terms.
DUS lenders applauded the move.
“It takes time for us to put the
waivers together, and it takes time
for them to review it,” said Ted
Patch, senior vice president and
chief production officer for DUS
lender Green Park Financial. “A
majority of that time is going to be
eliminated, and that’s going to make
a huge difference in our ability to
process business efficiently.”
The new guides also give lenders
more discretion as to the required
level of borrower documentation.
“In the past, there would be more
standard documentation, a deeper
level of due diligence required,” said
Patch. “Now, it’s more up to the individual
lenders to make the decision
as to what level of due diligence is
needed.”
Earlier this year, Phil Weber, senior
vice president of Fannie Mae’s
multifamily division, said that the
DUS program “has evolved into an
elaborate waiver process,” and
vowed to re-make the program.
Many expected the new guidelines
to be released earlier this year, but
the turmoil in the capital markets
complicated those efforts.
The volatility made it more difficult
for the company to figure out
appropriate standardized terms.
Plus, transaction volume surged as
borrowers flocked to portfolio
lenders, forcing Fannie to shift
resources to process the business at
hand.
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