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Getting a mortgage is about to get easier

  

foxct.com | December 10, 2014 

NEW YORK (CNNMoney) — For years now, if you didn’t have near perfect credit and a hefty 20% down payment, chances were slim that lenders would give you a mortgage.

But that’s all about to change.

That’s because Fannie Mae and Freddie Mac, the two government-backed mortgage giants that backstop a majority of all mortgages, have put new lending guidelines in place that should make it easier for borrowers to secure loans.

Not only are the two agencies lowering downpayment requirements and making it easier for loans to be classified as qualified mortgages, but more importantly, they have clarified when lenders will be on the hook if borrowers default.

In the past, Fannie and Freddie have been able to force lenders to buy back loans that have defaulted soon after it was issued, if any mistakes were made in the paperwork or if there was borrower fraud.

“Lenders have been real concerned about these buybacks,” said Doug Lebda, CEO of LendingTree. “If problems arise with loans, the [Fannie/Freddie] guarantee often fails when lenders need it the most.”

Mel Watt, the head of the Federal Housing Finance Agency, acknowledged that the previous policy made it hard for lenders to understand exactly when Fannie Mae or Freddie Mac would require the banks to repurchase loans.

Under the new rules, any loans with no missed payments for 36 consecutive months after they were first issued will be backed by Freddie or Fannie should they default. The agencies will also allow two missed payments in the first 36 months without forcing borrowers into foreclosure.

And if private mortgage insurance, which is required for all low downpayment mortgages, is rescinded, say due to errors made in the underwriting process, lenders will not automatically be required to repurchase the loans.

“That makes the Fannie/Freddie guarantees more like real insurance,” said Lebda.

According to Lawrence Yun, chief economist for the National Association of Realtors, the buyback issue has been “the number one hindrance to mortgage lending lately. If it disappears, it would be a big boost to mortgage lending.”

Freddie and Fannie have also said they will start backing 3% down loans. Borrowers can currently get 3.5% down loans from the FHA, although they require borrowers to pay mortgage insurance premiums for the life of their loans.

The new low down payment loans should help boost homebuying among low-income and first-time homebuyers, who have been conspicuously absent from the housing market over the past year.

Lenders already seem to be loosening up a bit.

Mark Palim, who oversees economic and strategic research at Fannie Mae, said average credit scores for approved loan applications have dropped slightly over the past few months and lenders are doling out loans with lower downpayments as well.

According to the Federal Reserve, nearly 14% of senior loan officers said their banks had gotten less strict in the three months ended in October.

Of course, lenders are not expected to return to the lax underwriting standards of the boom years. Banks are much more careful these days, making sure that all mortgages are fully documented, said Palim.

They don’t want to look irresponsible, or worse, predatory. “They’re very concerned about reputational risk,” he said.

 

Back to December 2014 Archive

CFLA was founded by the Nation's Leading Foreclosure Defense Attorneys back in 2007 to serve the Foreclosure Defense Industry and fight pervasive Bank Fraud. Since opening our virtual doors, CFLA has rapidly expanded to become the premier online legal destination for small businesses and consumers. But as the company continues to grow, we're careful to hold true to our original vision. For us, putting the law within reach of millions of people is more than just a novel idea—it's the founding principle, just ask Andrew P. Lehman, J.D.. With convenient locations in Houston and Los Angeles, you can contact Our National Account Specialist and General Manager / Member Damion W. Emholtz at 888-758-2352 for a free Mortgage Fraud Analysis or to obtain samples of work product, including cutting edge Bloomberg Securitization Audits, Litigation Support, Quiet Title Packages, and for more information about our Nationally Accredited and U.S. Department of Education Approved "Mortgage Securitization Analyst Training Certification" Classes (3 days) 24 hours for approved CLE & MCLE Credit (Now Available Online).

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