Will Mortgage Loan Guidelines Become Easier for Borrowers?


Are the recent rule changes and comments in January made by Mel Watt, director of the Federal Housing Finance Agency, a clue that government and mortgage bankers are in agreement in the methods they can make it easier for borrowers to get a mortgage loan.

A couple of initiatives are on the plate for the government in 2015 in regards to lending: It will introducing another set of rules in order to prevent the loose underwriting guidelines that sparked the housing crisis and Great Recession approximately seven years ago. On top of that, it will be taking care of issues that lenders’ strict criteria may have contributed to a decline in the housing market by making it harder to be approved for a mortgage for prospective borrowers.

Mortgage Approval

In 2014 the government came out with Qualified Mortgage (QM) rules, which requires that a borrower’s gross monthly debt be less than 43 percent based on all of their debts. If the loan doesn’t meet QM guidelines, borrowers who default have the right to sue the lender. QM is an element of the Dodd-Frank law targeted at lenders to implement tighter underwriter standards.

The “ability-to repay” rules makes income the leading qualifier for borrowers. These rules have made it tougher for self-employed borrowers to obtain financing even if they have substantially more liquid assets than someone with verified income. Subsequently, lenders put one more condition into the ability to repay rule like higher credit scores.

.A new rule known as “Qualified Residential Mortgage” (QRM) becomes effective in October, calling for lenders to maintain 5-percent of mortgages they originate on their books for a minimum of five years except when the loans meet QM rules. Industry experts believe the rule may make lenders feel a lot more confident in regards to lending.

In February 2015, it was reported that an increasing number of U.S. lenders eased their lending standards compared to the amount that are tightening. In addition, with interest rates decreasing, mortgage payments have become more affordable than any other period in the last two years.

Currently, the government allows FICO credit scores down to 500 for its FHA mortgage program. However other lenders, still use a second set of rules and set a minimum FICO requirement of 580. Previously, the minimum required score was 640.

If you’ve been turned down for a mortgage in the past couple of years due to credit score, it may be worthwhile to re-apply. The reasons why your application was turned down may not be valid now.

The FHA not long ago dropped their mortgage insurance premiums (MIP) on all 30-year mortgage loans. It’s become less expensive to obtain FHA financing than any time since it became available for borrowers in 80 years.

Recently, Republican lawmakers took their focus on the Dodd-Frank law, offering a plan that would repeal parts of Dodd-Frank.  It is an effort that calls for eliminating deficits and making lending a little more flexible for the self-employed borrower