What nobody addressed at the hearing, though, was the elephant in the room: OK, we've got a problem. But what, if anything, can buyers who find it difficult to meet the new standards do about it?
The testimony came from mortgage, banking and credit union leaders — even the head of a nonprofit
By forcing creditors to offer mortgages within a tightly confined box of complex underwriting requirements and imposing crushing financial penalties for infractions, the new regulations are making lenders hyper-cautious about approving anybody, especially applicants who appear marginal or don't quite fit the standard profile.
Bill Emerson, chief executive of Quicken Loans, one of the country's highest-volume lenders, said the new rules could "impair credit access for many of the very consumers they are designed to protect." These people are all over the country — young first-time buyers with student debt, middle-income minority buyers, self-employed individuals and those whose incomes are not received at regular intervals, plus just about anybody with household debt that exceeds 43% of income.
But are there ways for folks like these to improve their chances to get a mortgage this year, rather than waiting the estimated 12 to 24 months it may take for regulators to assess the effect of their rules and loosen up? Yes. Here are a few practical strategies.
•Debt ratios. Though the baseline standard for a new "qualified mortgage" is that a borrower's total debt-to-income ratio should not be greater than 43%, lenders say there is wiggle room if you search for it. For example, conventional loans being sold to giant investors
Dennis C. Smith, co-owner of Stratis Financial in Huntington Beach, says "we've had some people with 44% to 45%" debt ratios get through the hoops. Smith uses another technique when appropriate: getting a qualified co-borrower, typically a close relative, to join with the buyer and sending the application to Freddie Mac, which he says has a more generous rule on non-occupant co-borrowers than Fannie Mae. According to Smith, this allows a sharing or "blending" of household finances and can produce a lower overall debt-to-income ratio if the non-occupant co-borrower has a strong financial profile.
Another option: The
John Councilman, president of
•Down-payment assistance. Toughened federal rules are shedding new light on some alternatives that get relatively little public attention — hundreds of bond-funded, low-cost mortgage assistance programs run by state and local housing finance agencies. According to an online service that tracks them and helps connect buyers with houses and funding, http://www.downpaymentresource.com, there are nearly 1,600 such programs across the country. The site estimates that 70% of for-sale listings in any given market are eligible for at least one of these programs.
Bottom line: You may have options. Check them out with the help of an experienced loan officer who works with a variety of funding sources. Ask about that upfront.