Mortgage News – Things I’m Seeing

The one constant it seems over the last few years in the mortgage lending industry is change, especially in underwriting guidelines. It seems that Fannie-Mae and Freddie-Mac are constantly tightening mortgage underwriting guidelines for anyone that wants to refinance their existing mortgage or take a new mortgage for the purchase of a home. It seems like on almost a daily basis mortgage lenders are sending out new restrictions when it comes to mortgage loan approval for today’s consumer. I will pass on the things that we are seeing as it relates to obtaining a mortgage approval under the current mortgage market conditions.

First and foremost mortgage lenders are really becoming conservative on appraisals. They want to see comparable sales as close in recent time of sale and proximity to the subject property as possible. They are really scrutinizing the adjustments appraisers make that raise or lower the value of any given property. Here is why the mortgage lenders have had their underwriters really look hard at appraisals. It is the one area of subjectivity in the entire loan. Everything else is pretty much black and white. For example, credit score, the amount of assets, income, etc are all objective – they are what they are.

On the other hand, an appraisal is somewhat subjective. Give a property to three different appraisers and you will get three different values albeit all relatively close together. Fannie-Mae is using this subjectivity to have lenders re-purchase loans because Fannie-Mae doesn’t agree with the property’s value. Never mind that the person at Fannie-Mae has never appraised a property in their life and highly doubtful they have any underwriting experience. The only way lenders can protect themselves from repurchasing a mortgage is to make sure that they are so conservative on the value of the property no one could disagree with the value.

Another item that Fannie-Mae and Freddie-Mac have really tightened is the debt to income ratio. Use to be that if a borrower had other compensating factors such as a large reserve of liquid assets then they would approve the loan with a higher than normal debt to income ratio. Now they both seem to not want to see any mortgage loan approved that exceeds a 45% debt to income ratio.

These are two items that borrowers need to be aware of when looking to obtain a mortgage. My advice make sure that you earn enough money that your debt to income ratio does not exceed 45% and secondly that the home you are buying or refinancing has several recent comparable sales to support the value of of your home.

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