Mortgage guidelines continue to change

The Banks have come up with new guidelines as they continue to figure out the best way to lend money to borrowers.  Michael McDermott from Primelanding states,

"Today we are seeing another turn of the metaphorical credit crescent wrench and it’s not a “lefty loosey” - it’s a “righty tighty.”  Fannie Mae (conventional loan giant) released its new regulations that will for the most part be effective come December 12^th (loan applications date).   Please look at #5 as this is a very big change that could have a major impact on your clients purchasing power and home buying plans.  Please plan accordingly remembering the 12/12/09 date.  Here is a list of the changes affecting your clients:

1.       New minimum FICO scores – 620 (most lenders were already using this as a floor)

2.    New adjustments for Flexible Mortgages (My Community, Flex 100  etc.  We will see these come back when we are no longer “declining)

3.       Elimination of “Expanded Approval” levels II and III (still have EA I – these are for “riskier loans)

4.       Credit Reports good for 90 days (already implemented but used to be 120 days)

5.     Total Expense Ratio will be capped at 45% (some exceptions up to 50% - rare)

The current expense ratio for Conventional Loans goes as high as 65% so cutting to 45% is a major change.  Please remember these changes are for Conventional Loans NOT FHA.  FHA currently allows strong/creditworthy borrowers to go up to 56.99% on their total expense ratio."

Looks like buyers will need to have a lot less debt before purchasing a home.  It may hurt a little at first, but in the long run - a good thing for borrowers!