Mortgage & Credit Guidelines Are Changing: Here is what you need to know
For those of us out there who are not involved in the mortgage industry, it can be a sea of acronyms,confusing ratios, and a synonym for frustrating phone calls. For some of those reasons, many people do not pay much attention to the 'news' in that field.
However, there has been some rather important news and changes that are set to go into effect by the end of July 2017. These changes will make obtaining a mortgage easier for the average person, but it is important to understand what will be different, and how it will affect us.
The first big change that was announced was that Judgements and Tax Liens will no longer be included on mortgage credit reports, and as such, will not impact your credit score. While this is generally regarded as a positive change, this could impact someone getting a mortgage. From a consumer standpoint, if you have an outstanding judgement or lien, that will come up during a refinance; it is only a matter of when. A Loan Officer previously would see this on a credit report, and address the issue up front. Now, this will come up further down the road. This could cause some deals to become delayed late in the process, or ultimately, fall through.
FANNIE MAE made the announcement at the end of May that they will change some of their requirements & guidelines when it comes to issuing 'Approve / Eligible' in their Automated Underwriting System (AUS). What this means to the average person: the computer algorithm used to evaluate the 'Risk Profile' of a potential borrower will make more generous decisions. Whereas the previous versions of the software would only issue Approve decisions up to 45% Debt To Income (DTI; calculated by taking Gross Earnings month / Monthly Obligations), that ratio will be increased to 50%.
Another large deal, and a hot button issue for many these days, is the changes regarding Student Debt. First, FANNIE MAE will now allow you to take Cash Out from the equity in your property to pay a student loan off without treating that as a Cash Out Refinance. This means you can borrow up to a higher percentage of the value of your home, at a lower rate. Also, you will be allowed to use the payment reported to credit from the creditor, as opposed to the 1% of the outstanding balance as the current guidelines state.
Additional Changes include:
- Updated the Loan To Value ratios for Adjustable Rate Mortgages to mirror Fixed Rate Mortgages; 95% vs previous 90%
- Allows AUS to issue Approve to borrowers with a Dispute on credit without requiring them to cure the issue (medical disputes continue to be excluded)
- Timeshare installment loans will be treated as a 'Mortgage' for lateness requirements
- Reserve Requirements for Multiple Financed Properties has been revised downward
Final Thoughts
From a consumer perspective, things are becoming easier for us to obtain a home; and this is a good thing. However, now as things become less boiler plate and vanilla, it is more important than ever, in my opinion, to make sure the company and Mortgage professionals you are working with are world class. Furthermore, as guidelines become more relaxed, companies will have more opportunities to be more creative, so there will be more choice in products for you.
If you have had trouble obtaining a mortgage in the past, things are improving. Please feel free to reach out to me via message, email or call if you have something you would like to discuss.
Thanks for reading, and I hope you found this useful!
FANNIE MAE Press release: Here
About:
Andrew Leonardis is an Account Executive with LoanDepot Wholesale focusing on Broker and Correspondent lending, but is also an experienced Loan Officer. Andrew studies, follows and researches economic, financial and mortgage market related topics. Please reach out with any questions/comments on the article, or with any mortgage related scenarios to [email protected] or 609.254.4976