Conventional Loan Blessing, or Much Ado About Nothing?

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Conventional Loan Blessing, or Much Ado About Nothing?


     Recently, there's been a lot of talk about Fannie Mae's increasing debt-to-income threshold, along with changes to credit reporting that should reduce the number of folks effected by judgments and liens when it comes to a mortgage application.  This is being promoted as big news across a wide spectrum of housing news outlets, and for good reason - from 2008 through 2015, there was little, if any, positive news coming from the mortgage world.  Loans were getting tougher to get, guidelines were stiff, many people were denied, and the stack of documentation to get a loan was getting bigger and bigger.Fannie Mae Guideline Changes


     These days, things are a little different.  Guidelines have loosened some, there are more 'common sense' measures in place, and technology has reduced the amount of paperwork to get a loan to 'next to nothing' for well qualified and salaried borrowers.  


     While any positive news certainly is news, fact is twofold with regard to this news:  Both FHA loans and conventional loans already allow for debt-income ratios (DTI) to reach 50%.  VA loans also allow much higher DTI ratios as they rely on DTI and the residual income of a borrower when qualifying.  In the conventional world, until the changes at Fannie Mae are implemented, loans only had to be sent to Freddie Mac and their LP automated underwriting system for approval up to 50% DTI.  


     Also,  DTI isn't the only factor that influences an automated approval through Fannie or Freddie - the automated systems are set up to analyze all borrower and property data input in it's entirety.  Freddie Mac's LP underwriting system typically only grants approval with a high DTI if the rest of the borrower's file is very strong.  The typical approval at 50% DTI will be someone with a decent sized down payment or equity in their home, a high FICO score, and some money in the bank as reserves.  I don't expect the model Fannie Mae implements to be much different.


     The 2nd piece of news focuses on the removal of many judgments and liens from consumer credit reports.  While this will be a nice change toward getting things right for consumers (which, frankly, the credit bureaus don't put enough effort into), it is also unlikely to be a game changer.  Title reports and 3rd party data verification systems will still stumble upon outstanding liens and judgments that may have to be paid prior to a mortgage applicant obtaining a mortgage.  As for incorrect data and negative income that will be removed, lenders are already in a position to remove those items and adjust borrower FICO scores through credit tools such as "rapid rescoring", where an error is documented, corrected, and adjusted on credit, which is a process that usually takes only between 1 and 2 weeks.


     One very bright spot for people that will see improvements to their credit will come in the form of improved FICO scores, which should result in better rates on mortgage loans since mortgages factor a borrower's FICO into the offered rate.  Some people may see a large increase, and others will see a very nominal increase as other factors in their credit history will play a big role in how large or negligible the score change will be.


     Overall, the changes at Fannie & the credit agencies are a bright spot, and a sign that things continue to trend in the favor of consumers and home buyers, but the changes shouldn't be seen as ground breaking events that will have hoardes of today's declined loan applicants turned immediately into approved applications.  Rather, it's a small step in the right direction, which is exactly the type of step that should be taken over and over until the marketplace makes sense.  After all, 2008 wasn't all that long ago...


Re-Blogged 1 time:

Re-Blogged By Re-Blogged At
  1. Lynn B. Friedman 07/15/2017 09:04 AM
Mortgage / Finance
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Myrl Jeffcoat
GreatWest Realty - Sacramento, CA
Greater Sacramento Real Estate Agent

I think the changes are a more balanced approach to lending.  Before the crash of 2008, we were exceptionally loosey-goosey with requirements.  After, we swung to really conservative requirements.  Hopefully, these changes will benefit many.

Jul 14, 2017 03:54 PM #1
George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

John I agree the DTI change is a very welcomed change which will enable many more borrowers to qualify for a mortgage.  But like you I am not very excited about the credit report change, in fact I am concern that it will cause surprises since LO's will not be able to see judgments and liens which will later show up during the underwriting process causing the loan to be denied.

Jul 14, 2017 07:50 PM #2
Laura Cerrano
Feng Shui Manhattan Long Island - Locust Valley, NY
Certified Feng Shui Expert, Speaker & Researcher

Well I give my blessing regardless that everything goes right for everyone in the right frame of mind, if that makes sense. :) Love and light!

Jul 14, 2017 09:17 PM #3
April Swenson
Coldwell Banker Ocean Shores Brokers - Ocean Shores, WA
CRS and Managing Broker - Ocean Shores Real Estate

Thank you for this news report.  Good to know.  I think it will be disatorious to make those changes to the credit reporting.

Jul 14, 2017 10:20 PM #4
Debra Leisek
Bay Realty,Inc Homer Alaska - Homer, AK

The credit ratings game is an ever thorny situation. I agree with you and George Souto  that I hope judgments dont show up late in the underwriting process and cause havoc...

Jul 14, 2017 11:51 PM #5
Richie Alan Naggar
people first...then business Ran Right Realty - Riverside, CA
agent & author

Whatever happens there should always be someone to explain it easy-peasy talk

Jul 15, 2017 05:36 AM #7
Michael Jacobs
Pasadena, CA
Los Angeles Pasadena 818.516.4393

Hi John --- as always, I like your straight-forward common sense approach to explaining the story behind the headlines.   Now, can you work on that issue involving inventory of available homes on the market for sale thing?   World peace?   

Have a good weekend.  

Jul 15, 2017 07:18 AM #8
Jeff Dowler, CRS
Solutions Real Estate - Carlsbad, CA
The Southern California Relocation Dude

Hi John

Thanks for a thoughtful analysis on the recent changes, and helpful to know about how this may impact buyers!

Enjoy your weekend!


Jul 15, 2017 07:27 AM #9
Sham Reddy CRS
H E R Realty, Dayton, OH - Dayton, OH

Thanks for the update!!!

Guidelines have loosened some, there are more 'common sense' measures in place, and technology has reduced the amount of paperwork to get a loan to 'next to nothing' for well qualified and salaried borrowers

Jul 15, 2017 10:09 AM #10
Dorie Dillard CRS GRI ABR
Coldwell Banker United Realtors® ~ 512.750.6899 - Austin, TX
Serving Buyers & Sellers in NW Austin Real Estate

Good afternoon John Meussner ,

Thank you for the update with a straightforward take on the changes. I agree it's a small step in the right direction!

Jul 15, 2017 02:28 PM #11
Kat Palmiotti
Grand Lux Realty, Monroe NY, 914-419-0270, - Monroe, NY
The House Kat

A small step in the right direction is positive movement. Thanks for the information!

Jul 16, 2017 05:33 AM #12
Joan Cox
House to Home, Inc. - Denver Real Estate - 720-231-6373 - Denver, CO
Denver Real Estate - Selling One Home at a Time

John, some of this sounds good, as long as the guidelines don't get so loose we end up in the same position we were back in 2008!   

Jul 16, 2017 07:39 AM #13
Nick Vandekar, 610-203-4543
Long & Foster Real Estate Inc 610-225-7400 - Devon, PA
Tredyffrin Easttown Realtor, Philly Main Line

Good steps to help people get the best rates will hep the market overall. 

Jul 17, 2017 07:26 AM #14
Dörte Engel
RE/MAX Leading Edge - Bowie, MD
ABC - Annapolis, Bowie, Crofton & rest of Maryland

Dear John,

I love it when things get better for more people. It makes the whole community nicer to be in.

Jul 17, 2017 07:56 PM #15
John Wiley
Right Move Real Estate Group- EXP Realty - Fort Myers, FL
Lee County, FL, ECO Broker, GRI, SRES,GREEN,PSA

John, I appreciate your summary of the changes that will give more buyers access to home ownership.

It will be interesting to see how many will take advantage of the changes.

Jul 18, 2017 06:17 AM #16
Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi
NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656 - New Lenox, IL
708.921.6331 - 40+ yrs experience

As with most things, there are pros and cons to the changes, John Meussner ... but overall I see more positive than not.  Options have opened up for clients that find themselves in these particular scenarios.   The new changes plus talking with an LO earlier in the process should bring better results ...


Jul 18, 2017 11:30 AM #17
Stavrula "Sam" Crafa, RNC,GRI, CDPE, PSA
Future Home Realty - Seminole, FL
Providing the integrity and service you deserve.

Lots of good information here. Small changes are a good thing along with small positive adjustments benefits everyone. Too much too soon might get us into trouble again. Thanks for the info. 

Aug 02, 2017 08:59 PM #18
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