Posted by: jeb1 | May 5, 2011

Mortgage Denied, Sometimes for No Good Reason

As the result of tighter standards from Fannie Mae and Freddie Mac, getting a mortgage has gotten tougher and many home buyers are getting rejected for loans they could easily afford. A quarter of all mortgage loan applications get denied for loans, according to the Federal Reserve. Many other potential home buyers never even try to get loans, said Jerry Howard, CEO of NAHB. “The pendulum has swung too far in the other direction,” Howard said. “This overreaction is retarding the housing market recovery.” Among the tougher requirements, for Fannie/Freddie lenders to approve a mortgage on a condo, 70% of the units in the building have to be already sold or under contract to individuals. Before 2009, the threshold was 51%. Today, if someone’s total debt exceeds 45% of income, the mortgage will be denied. In 2009, the limit was 55%. Fannie and Freddie also have gotten stricter in how they factor in missed payments on credit cards, auto loans and other debts in which the balances do not have to be paid off every month. They used to be OK with a missed payment or two. Now, one missed payment will hit the debt-to-income ratio, because banks will add 5% of the outstanding loan balance to the debt part of the calculation. (www.money.cnn.com)
CNN Money (4/19/11); Les Christie


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