Fed Survey : Mortgage Guidelines Tighten Further, Freeze Out Would-Be Refinancers
It's getting tougher to get approved for a mortgage. Still.
In its quarterly survey of senior loan officers around the country, the Federal Reserve asked whether "prime" residential mortgage guidelines" have tightened in the prior 3 months.
A "prime" borrower typically carries a well-documented credit history with high credit scores, has a low debt-to-income ratio, and uses a traditional fixed-rate or adjustable-rate mortgage.
For the period July-September 2010, 52 of 54 responding loan officers admitted to tightening their prime guidelines, or leaving them "basically unchanged".
Just 4% of banks loosened their lending standards.
If you've applied for a home loan lately -- for either purchase or refinance -- you've likely experienced the effects of the last 4 years. Because of delinquencies and defaults, today's mortgage underwriters are forced to scrutinize income, assets and credit scores, among other facets of an home loan application.
Mortgage applicants have higher hurdles to clear:
- Minimum credit scores are higher versus last year
- Downpayment/equity requirements are larger versus last year
- Debt-to-Income ratios must be lower versus last year
And now, effective December 13, 2010, more changes are coming. Fannie Mae announced they will once again update their guidelines. A few of the more major changes:
- The 97% "Flexible Mortgage" is eliminated, replaced by a standard 97% loan subject to pricing adjustments (higher fees and/or rates).
- Borrower "minimum contributions" are eliminated for 1-unit purchases with at least 3% down. Gifts and grants are permissible sources for a downpayment.
- All revolving debt must be included in debt-to-income ratios, regardless of whether there's "10 Payments Or Less". If there's debt, it must be counted.
- A 5% monthly payment against the balance must be assumed when no minimum monthly payment can be verified via the creditor, or the credit bureaus.
The new guidelines also state that former homeowners with a foreclosure on record must wait 7 years before re-applying for a conforming mortgage
If you're among the many people wondering if now is the right time to join the Refinance Boom, or to buy a home, consider that, while mortgage rates may fall further, eligibility standards may not.
Low mortgage rates don't matter if you can't qualify for them. Call or email me today to see if now might be the best time to refinance.
