When FHA made changes to its 203(k) loan program, Fannie Mae was apparently watching closely and the GSE took steps to ensure its guidelines for rehabilitation loans would complement HUD's initiatives.

Fannie said construction-related costs such as property inspection fees, appraisal fees, the cost of title insurance, and fees for construction draws can be financed in the mortgage amount. Fannie predicted the changes would make the initiatives - which are part of Fannie's HomeStyle rural lending program - more attractive to lenders and would encourage participation in HUD's 203(k) Rehabilitation Mortgage Insurance Program.

The program changes brings its HomeStyle program in line with Fannie's other community lending programs. And as a by product of the leveling of those programs, higher underwriting ratios of 33% mortgage debt and 38% total debt are now available to HomeStyle borrowers whose incomes do not exceed 115% of the area median, and no income limits will apply to some borrowers in certain targeted communities.

Fannie also said its HomeStyle second mortgage program would remain a demonstration program. The program is designed for homeowners looking to remodel their homes. Those loan amounts are based on the value of homes after proposed improvements are completed, and can be sold to Fannie before repairs have been finished.

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