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New round of Agency credit tightening

Earlier this month the Obama administration announced its goal to reduce government involvement in mortgage lending.  Currently  85% of all mortgages are funded by FHA, VA, USDA, Fannie Mae or Freddie Mac. The administrations immediate stated goal is to shrink that number to below 50%.

As we’ve learned over the years, lenders will slow down lending activities by using two tools. Raising rates or tightening underwriting guidelines.  Look for both of these to happen.  More with conventional loans then FHA loans though.  Look for Fannie Mae and Freddie Mac to start requiring a minimum of 10% down in the future. FHA will most likely raise their mortgage insurance premium by .25%.

Factbox: Short term plans to reduce U.S. govt role in housing
The Obama administration unveiled on Friday a plan to unwind the government-controlled mortgage buyers Fannie Mae and Freddie Mac. Below are the administration’s short term steps to reduce the government’s role in the $10.6 trillion mortgage market.

http://www.cnbc.com/id/41532848/

Here is a prime example of underwriting changes already taking place. Borrowers have been allowed to pay off debt in order to qualify. That is changing for revolving debt. That debt must now be counted even if you are paying it off. Solution:  We counsel our customers to pay off debt before point of application.

Here’s the silver lining.  With the government pledging to get out of the mortgage market private investors will step in. We can envision lending actually getting back to a common sense approach soon.  Raise your hand if you would trade higher mortgage rates for more common sense underwriting and more speed in the process and more approvals. That day is coming.

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About danielduckworthmortgagenotes

Senior Mortgage Loan Officer at Academy Mortgage Group in Scottsdale, AZ

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