Lending Pendulum is Slowly Changing for Your Customers Too

A recent survey of banks and mortgage companies by Fannie Mae

found that a record number have relaxed some requirements for mortgages.

In short, standards on debt-to-income ratios, minimum down payments and student loan debt have been made less stringent. Under old rules, total monthly debt load could not exceed 45 percent of one’s monthly household gross income. Now, total monthly debt can now go to 50 percent. With FHA loans, this number can go to 55 or 56 percent — under certain circumstances.

Fannie Mae’s recent change in the way it handles student loans for calculating debt ratios is another area of change. When looking at borrowers who have reduced re-payment plans, lenders were forced to impute payment terms for borrowers using these plans. Even when credit reports indicated the borrowers were paying little or nothing, lenders computing debt ratios were required to factor in monthly payments equal to 1 percent of the outstanding balance on the student debt. Instead of adding 1 percent of the student loan balance to the applicants’ monthly debt calculation, lenders can now use the actual amount being paid under the plan.

What about down payment changes? Minimums requirements have been reduced, with many now requiring just 3 percent down on conventional mortgages. FHA still requires 3.5 percent. The industry is also starting to see some other super low (1 percent or less) offerings to buyers with solid credit histories.

Nearly one third of the mortgages closed at Fannie and Freddie Mae back in October had FICO scores below 700, although the nationwide average was 754. l