Fannie Mae Mortgage Student Loan Solutions Frequently Asked Questions

  Fannie Mae Student Loan Solutions Frequently Asked Questions Listed below are common questions about Fannie Mae’s Student Loan Solutions. Q1. How does Fannie Mae anticipate Student Loan Solutions will benefit borrowers? Forty-four million Americans today have student loan debt; seven in 10 graduates of public and nonprofit colleges in 2015 had student loan debt; and recent graduates averaged $34,000 in student loan debt.* The Student Loan Solutions referenced in the Announcement address challenges and obstacles to homeownership due to a significant increase in student loan debt over the past decade and provide access to credit for qualified borrowers. The new solutions give homeowners the opportunity to pay off one or more student loans with a lower cost mortgage refinance, allow borrowers to exclude certain monthly obligations paid by others from debt-to-income (DTI) ratio, and make it more likely for borrowers with student debt to qualify for a mortgage loan by allowing lenders to accept student debt payments included on credit reports. Student Loan Cash-Out Refinance Q2. Why did Fannie Mae decide to offer the Student Loan Cash-Out Refinance option and how did they get comfortable from a risk perspective? The Student Loan Cash-Out Refinance offers simpler eligibility terms and reduced fees designed to provide additional options for borrowers with student debt. Q3. Can part of a student loan debt be paid off with the refinance? No, borrowers may not partially pay down a student loan. Student loan(s) must be paid in full with the transaction. No other debts can be paid except PACE (Property Assessed Clean Energy) loans. Q4. Are high-balance loans eligible? Yes. Q5. Are there any technical considerations for lenders and technology service providers? Yes Q6. Why did Fannie Mae make this policy change to exclude debt paid by others and how did they get comfortable from a risk perspective? The policy change provides greater access to credit for creditworthy borrowers who meet all other requirements. It also supports Fannie Mae’s broader efforts to mitigate the widespread challenges of student debt. From a risk perspective, we are still requiring 12 months of documentation to verify that a party (other than the borrower) has been paying the monthly payments . Q7. What evidence needs to be provided? Lenders must obtain the most recent 12 months’ cancelled checks (or bank statements evidencing 12 months payments) from the party paying the debt. Additionally, lenders must ascertain that there is not a history of delinquent payments for that debt. Q8. If someone else pays only a portion of the non-mortgage debt, is all of the non-mortgage debt excluded in the DTI ratio, or is it only the portion that is paid by the third party? In order for the debt to be excluded from the DTI ratio, the other party has to pay the complete monthly obligation every month for a minimum of 12 months. Q9. What about mortgage debt? Fannie Mae’s policy regarding mortgage debt has not changed. Fannie Mae will continue permitting exclusion of the mortgage monthly payment from a borrower’s DTI ratio when the lender can provide a 12-month history of satisfactory payment by another party, but only if the other party is obligated on the mortgage debt. Q10. Why is Fannie Mae making this student loan payment calculation change and how did they get comfortable from a risk perspective? Fannie Mae recognizes the operational complexity of their previous policy and this change simplifies the process for lenders. For student loans associated with an income-driven repayment (IDR) plan, the student loan payment, as listed on the credit report, is the actual payment the borrower is making and that payment should be used in qualifying. Any future increases in the IDR payment will be tied to similar increases in the student’s income, mitigating concerns that IDR payments may create payment shock. Q11. Some IDR plans allow a borrower’s payment to go to $0. In that case, how is the student loan payment calculated? As long as the lender can provide documentation showing the IDR payment is $0, they can qualify the borrower with $0 for the monthly qualifying payment. Q12. What if the credit report does not reflect the correct student loan monthly payment and there is documentation in the file to support a different monthly payment? If a lender has student loan documentation in the file (i.e., most recent student loan statement), evidencing a different monthly payment than the credit report, the lender may use that alternative documentation to support the correct monthly payment amount. Alternatively, lenders may obtain a credit report supplement or update the credit report to reflect the correct monthly payment amount. Q13. Will Fannie Mae continue allowing lenders to manually calculate an estimated student loan payment in cases where the repayment terms are unknown? Yes. If the repayment terms are unknown and lenders choose not to estimate a 1% (of unpaid principal balance) payment, lenders may calculate a payment that will fully amortize the loan(s) based on the current prevailing student loan interest rate and the allowable repayment period shown in the table below. The “current prevailing student loan interest rate” can be found on a variety of websites. For example, see U.S. Department of Education Federal Student Aid in E-1-03, List of Contacts (01/31/2017). The table below specifies the repayment period to be used when calculating a fully amortizing payment. Calculating a Student Loan Repayment Total Outstanding Balance Of All Student Loans Payment period payback Example: Calculating an Amortizing Payment $1 – $7,499 10 years Balance: $17,500 $7,500 – $9,999 12 years Repayment Period: 15 years $10,000 – $19,999 15 years Interest Rate: 4.29% $20,000 – $39,999 20 years Monthly Amortizing Payment: $132.00 $40,000 – $59,999 25 years $60,000 + 30 years Note: The lender is responsible for determining that the payment on the credit report or other documents provided by the student loan lender or borrower are fully amortizing payments Fill out my form! .