Monday, July 10, 2017

Don't Fear the Changes!

The new changes coming down the pike for mortgage loan qualifying have some people talking. Fannie Mae and the Credit Bureaus have set out some new guidelines that will be allowing more people to qualify for a mortgage.

The credit bureaus are holding municipalities to stricter standards when reporting tax liens and judgements. This means that those individuals who have their credit affected by tax liens or judgements may no longer have those derogatory items on their credit profile. For these people that will result in higher credit scores and more ability to borrow.

Fannie Mae is allowing higher debt ratios. What this means is that portion of a person's income that is dedicated to monthly expenses (liabilities) can be higher now compared to what it was in the past. An example of this is if you gross $10,000 a month in income, the old rule said you could spend no more than $4,300 on your monthly liabilities including housing payment. Now the rule has been amended to allow $5,000 on your monthly liabilities including housing payment. The spokesperson from Fannie Mae said this was due to the large number of Americans who are subject to student loans. Sure there are other characteristics of the loan file that must be present, but this is the general idea of the recent (July 29, 2017) change.

A couple of things to note regarding these changes and why not to "fear" them. Tax liens and judgements will continue to be present if the proper identifying factors are present. This just eliminates the ones that stick on a person's credit report long after being paid or belonging to someone with a similar name (both great reasons to make this long overdue change).

For Fannie, there are numerous things that are not taken into consideration for income in a borrower's file (e.g. income from a roommate, tip income/bonus income/commission income received less than two years, etc.). So Fannie is allowing borrower's to make up the income through creativity ( because less and less people are punching W-2 clocks these days...right UBER), which is a very good thing. Sure it would be nice to see them adapt a bit better to the chainging income profile of Americans, but this is a good start.

In conclusion, there is little to fear in these changes. The major factors to be concerned about in our economy are what the "big money" is up to and whether they are continuing to invest in derivatives with little to no underlying investment. We all know where that went in 2006 and hopefully they have learned their lesson because one thing we know that is for certain - change will ensue.

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