Fannie Mae’s Action May Change Patterns
Fannie Mae, as the country’s largest single supplier of home mortgage credit, wants more home buyers to ante up more down payment.
The Federal National Mortgage Assn., suffering from huge foreclosure losses, took the action earlier this month to lessen risk for itself in the future and to force an increase in the buyer’s equity.
Effective Oct. 15, all purchases involving a lender working with Fannie Mae must include a 10% down payment or show that the buyer can qualify with a larger amount of income. (FHA and VA financing, with their low down payment mortgages programs, are not affected.)
Loans sold to Fannie Mae with less than 10% down payment must be underwritten to 25% and 33% payment-to-income ratios. In other words, the cost of buying the home--principle, interest, taxes and insurance--cannot exceed 25% of the buyer’s gross income and the total installment debt, including the monthly mortgage payment, cannot be more than 33% of the gross income.
Since the associaton is such a major “owner” of property, buying about 10% of all secondary market mortgages, its guidelines are considered the standard for the industry. Other such major lenders may follow suit.
Fannie Mae buys home mortgages from lending institutions and resells them on money markets. Because it has been smarting from a high volume of foreclosure losses, $87.3 million in 1984, the shareholder-owned corporation took this acton to forestall even greater losses. Even so, as of July 1, it had sustained $47 million more in such losses.
In this day of the two-income family or household, these new qualification requirements will hit hardest at first-time buyers, singles and the one-income family attemping to enter the housing market.
The Census Bureau reports that of the nation’s 84 million households, about 34 million are headed by single adults with women accounting for 22.4 million of the singles segment.
By the bureau’s description, the single head of household can be a single unmarried person living alone, a widow or widower, single parent, a divorced or separated person.
Fannie Mae’s new rules mean that one-income, would-be buyers will have trouble qualifying for a conventional loan.
To illustrate, it cited the case of a current buyer of a $76,500 home putting down 5%, with a 12.2% mortgage rate and an annual income of $36,814 to afford a $859 monthly payment.
Under the toughened regulations, the income would have to be $41,232 to qualify. And an almost overnight salary availability of $4,400 is not easy to come by.
A July, 1984 survey by the National Assn. of Realtors showed that singles buying homes cited tax and investment advantages as their most important reasons. Those questioned were 1,200 recent buyers of homes.
At this point, Fannie Mae, playing a troubled national landlord’s role, wants its would-be tenants, home buyers--singles and others--to carry more of the burden of home financing.
