Harney: Will tough mortgage rules hurt real estate recovery?
By Kenneth Harney - Washington Post
WASHINGTON - Real estate may be showing signs of a turnaround in many local markets but the nation's largest mortgage players continue to ratchet up their underwriting rules, making home purchases more difficult for some buyers.
Mortgage giant Fannie Mae, for example, issued a laundry list of tougher policies June 8 that could directly affect thousands of buyers in the coming months, especially those involved in job-related transfers.
Reversing a long-standing policy, Fannie no longer will permit mortgage applicants to count the income of so-called "trailing spouses" toward the household income needed to qualify for a loan. A trailing spouse is one who joins his or her spouse or partner in a job-related move, but who has yet to obtain employment in the new location.
If the main breadwinner's income isn't sufficient to handle the mortgage, the loan application will be rejected; only when the trailing spouse has documented income in the new location will it be counted.
Brian Faith, a spokesman for Fannie Mae, said "given the current economic and job market instability, the company has opted to discontinue consideration of trailing secondary wage-earner income in the interest of safer underwriting, since this income would only be anticipated and undocumented."
Jan Hatfield-Goldman, a vice president for Worldwide ERC, the international trade association representing the employee relocation industry, said Fannie's decision "makes the current challenging relocation environment even more so. Some transfers will either have to qualify on the basis of one income" - forcing couples to "buy less house than they wanted" - or "they may be required to rent for an extended period of time until the spouse or couple is re-employed. If a couple must wait to purchase a new home until the spouse can find a new job, it could well cause some to reconsider" whether they want to make the job shift at all.
Worldwide ERC estimates that about 800,000 households in the United States move in a typical year because of job transfers.
Freddie Mac, which with Fannie Mae accounts for 70 percent-plus of all new mortgage volume, still counts trailing spouse or co-borrower income for loan applications, but under strict guidelines:
The amount of the trailing co-borrower income cannot exceed 33 percent of the total qualifying income for the mortgage application.
That any income cannot be from self-employment.
The trailing spouse must have been continuously employed in the same occupation for at least two years preceding the relocation.
And the co-borrower must provide a statement of intent to find employment in the new location. The loan officer or lender must also analyze that local employment market and verify that there are adequate opportunities and earnings potential for the co-borrower.
As part of its June 8 tightening of underwriting rules, Fannie Mae also announced that it plans to discount the values of all borrowers' stock, bond, mutual fund and retirement fund holdings that are claimed toward the applicants' financial reserves needed to qualify for a mortgage. While Fannie previously counted 100 percent of the claimed or documented value of stocks, bonds and mutual funds toward reserves, under its revised policy it will discount them by 30 percent.
Comments