Fannie Mae Gets Tougher on Lending

Fannie Mae just announced it is tightening up lending guidelines even further. What are they doing, how bad will it get and will it ever get easier to get a home loan again?

Fannie Mae Changes the Game Again

In response to continued defaults and in effort to maintain loan quality Fannie Mae has announced it is making a number of sweeping changes to underwriting standards beginning in October 2012.

This includes:

•    Reducing acceptable LTV ratios on some loans
•    Increase minimum credit scores required to get a loan
•    Requiring additional income documentation for self-employed borrowers
•    Setting maximum debt-to-income ratios in stone
•    Removing the ability for those who don’t fit the mold to qualify with compensating factors
•    Limiting borrowers with a lack of traditional credit

While some of the changes may not be too dramatically different from what lenders are requiring today mortgage originators have always typically set the bar far higher than Fannie Mae’s rules, meaning that borrowing could quickly become far tougher and more expensive for home buyers and those considering refinancing. Unfortunately this comes on the heels of recent increases in borrowing costs and an upward run in mortgage interest rates as well as skyrocketing insurance and utility costs in many parts of the nation.

The Effect on the Housing Market and Real Estate Investing

This will certainly have a dampening effect on prospective home buyers’ ability to buy homes regardless of how low prices are. Fortunately demand has been rocketing and with few other safe or attractive investments out there if any this and the amount of liquid capital floating around should maintain growth, albeit slower than some homeowners have hoped for.

Fortunately for investors this means less competition and the likelihood more homeowners will have to give in, drop asking prices and sell cheap. However, it also means that those who are able to attract the most cash for buying power will definitely come out on top. This can be done via soliciting prospective private mortgage lenders, getting better at wielding transactional funding, tapping into crowdfunding, pooling capital in the form of trusts and finding other types of loans to use.

The sooner real estate investors start compiling these resources the better as the competition will certainly grow for this cash. Get in first and lock it up.

Will Mortgages Ever Get Easier Again?

On the bright side, looking back at historical cycles mortgages will become easier to qualify for again. Once these new loans being originated now prove that they can perform and the market shows growth and people forget about the last bubble and begin swearing “it will be different this time” lending will loosen up. Credit score requirements, income and asset documentation standards and appraisal reviews will drop and plenty of new, exotic mortgage programs will be born to fuel the new boom.

Of course, on the downside mortgage rates and home prices will have certainly blossomed quite well by then meaning homeowners can’t wait to refinance and real estate investors can’t until then to start making acquisitions.

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