As of December 12th 2009 Fannie Mae drops its back end qualifying ratio to 45%. What does this mean? Well, a "back end ratio" is the total of all credit card, home and auto loan, student loan, and perhaps any collections divided by your gross income. Currently I have funded a file in 2009 with up to a 58% back end ratio, providing the file had compensating factors, most commonly, equity or reserves. As of Dec 12th Fannie is dropping this to 45% although they say higher DTI's will be available with compensating factors. However, in an ever changing industry such as our current lending industry, I am skeptical as to what will actually get approved.
As the largest funder of home mortgages in the US Fannie has its share of problems right now. From a business standpoint it is a good decision for them. However, as a mortgage consultant, of course, I hate it. It means it will be harder to lower your payment if you are trying to refinance, (a problem I am constantly having despite record low rates due to declining values), and it will be harder, or at least more expensive, to purchase as you will have to use non conventional means.
As a consumer this means now more than ever you need to know your options. Many of the big banks only fund through Fannie Mae. If you walk into one of these institutions they may automatically qualify you for FHA or some other type on financing because they do not sell loans to Freddie Mac, who currently is not following suit. How long this will last? We do not know.
I think it is more necessary than ever to consult with a mortgage broker. You can of course take this with a grain of salt, as a Branch manager for First Priority Financial who has been in the brokerage industry since 1993, I am primarily a mortgage broker, however, we now have options for banking as well, simply to ensure we stay competitive. With these changes many mortgage banks will become more competitive than the big boys as they will have certain portfolio options unavailable to the large banks who only funnel loans through Fannie Mae. As a broker, First Priority Financial, can run automated pre approvals through Fannie Mae or Freddie Mac, as well as through our correspondent bank relationships. It will be companies like us that prove most beneficial to work with 2010. I want to assure you this is a true belief and not a shameless plug for the LittleFish!
Today most home loans my team funds are in Alameda, San Leandro, Oakland, Pinole, Berkeley, and more and more in Monterey, Pismo Beach, and San Luis Obispo. We know the California micro - markets and what programs are available as options change with market conditions and vary by zip code more and more these days. It will be interesting to see what this does for the housing markets and their prospective values.
Good Luck Out There!
Garrick
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