Underwriting Changes that will affect your GA Mortgage

A quick background:  When we obtain an approval for clients on a conventional, conforming loan we run their scenario through an automated underwriting system put in place by Fannie Mae.  Since Fannie Mae buys many of the loans in the secondary market almost all lenders, banks, etc. use their underwriting guidelines as the standard by which they underwrite their files.  The system that is used for these underwriting determinations is Fannie Mae’s DU program (DU = Desktop Underwriter) and it basically does a statistical analysis of each applicant to determine their risk for default.  These days Fannie Mae is even more focused on reducing default risks for borrowers and they use changes to the DU system to do this.

On December 12th, 2009, Fannie Mae is changing their guidelines toward qualifying ratios.  The qualifying ratio that most lenders are concerned with is called the back-end ratio.

be-ratio2The back-end ratio tells us what percentage of a person’s total gross income goes to pay monthly debt, including the new mortgage you are about to have.  Currently it is not uncommon for a borrower to have a back ratio of 50-55% and that scenario is often approved by DU.  On December 12th, the back-end ratio will go to 45%.  So what?  If you have a loan in process and you are already under contract, if your lender runs DU again on or after Dec. 12th and you have a higher than 45% back-end ratio, chances are your loan will be declined.  Many lenders are not aware that this change is coming, so find out what your ratio is today and be prepared if your ratio is high.  If you are a real estate agent and have buyers in process, find out if this change is going to affect your buyers.  Georgia mortgages are constantly changing, so check back here often and I will keep you up to date on changes.

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