2 Potentially Scary Changes from Fannie

Fannie Mae announced last week that on-time rental payments will now factor into their underwriting calculations. Fannie is doing this in hopes of being able to extend mortgages to more people including minorities who may not use traditional credit. And I agree with this. However, I am very worried that a bad rental payment history will NOT keep people from getting a mortgage per Fannie Mae. What’s next? You don’t have to pay your car loan, student loans, or credit cards?

Here are the rules for us to be able to use rental payments for a borrower—
· They must be a FTHB and they must have rented for the last 12 months and their rent payment is at least $300 or more a month.
· We can only do this on primary residence purchase loans.
· The borrower must have a credit score. I thought this new guideline was meant to help people without traditional credit?
· We as the lender have to be able to obtain a VOA report on their rental payment history using their bank statements. I have NO idea how we will do this currently and neither does any other lender as the mortgage community was shocked by this announcement last week.

In another rule change to increase mortgage lending Fannie announced this change. On a loan with 2 borrowers they will let us average each borrowers’ middle score and if this average is greater than 620 we can lend to them; but at a higher cost of course. For example, borrower A’s middle Fico score is 600 and borrower B’s middle Fico score is 700. In the past borrower A couldn’t be on the loan. But, now for loan approval purposes their Fico score will be 650 (the average of 600 and 700) and thus their loan is approvable. However, their interest rate and potentially mortgage insurance premiums will be higher.

These 2 changes scare me and reminds me of changes Fannie began making in the early 2000’s under Franklin Raines that helped cause the massive housing crisis and the Great Recession.