Fannie Mae (the largest national provider of home loan funds) recently issued new rules that will affect many HELOC customers. The Boston Globe reports:

“Fannie Mae will no longer allow homeowners to refinance loans it either owns or has packaged into bonds at typical loan-to-value ratios in areas with falling home prices if they’re going to use proceeds to pay off a second mortgage, according to a memo to lenders dated Monday and posted on its website.

The government-chartered company, which owns or guarantees almost $3 trillion of US mortgages, four months ago reinstated a policy that requires lenders to boost by 5 percentage points the required size of down payments or borrower equity on new lending before Fannie Mae will accept the debt, part of a series of changes to standards at the company and rival Freddie Mac amid the largest drop in US home prices on record.”

In short: If you live in an area with falling home prices, you may not be able to refinance your first mortgage in order to pay off your HELOC. Additionally, new HELOC customers will need to have more equity in their homes before taking out a home equity line of credit.

These new rules apply to borrowers with mortgages using Fannie Mae funds.  (Note that Fannie Mae is not a  lender; but many lenders such as Wells Fargo and Countrywide use Fannie Mae funds to create loans.)

Tags | Fannie Mae, Heloc, home equity line of credit, lenders, lending standards