| Several recent changes to mortgage underwriting and approval standards show a loosening of requirements for approval from Fannie Mae and Freddie Mac – but the jury is out on what impact those changes will have on the overall economy.
First there’s the recent change to lien reporting. As of July 1, credit scores will no longer automatically report tax liens, civil judgements and unpaid medical bills, all of which have a negative impact on an individual’s score. The change is the result of a lawsuit alleging those judgements are often inaccurately reported and almost impossible to remove (which is true). Estimates range, but thousands of consumers could see a bump of 10 or more points to their scores.
That figure – 10 points – is important; the average Fannie and Freddie borrower in June had a credit score of 754, well above the national average. But as Ken Harney reports this week, 13 percent of approved loans in June had scores between 650 and 699, and 4.3 percent of approved loans ranged from the low 500s to 649. Ten points can make or break some of those borrowers.
Loan originators and mortgage officers will still be able to see borrowers’ comprehensive credit histories, complete with liens (for an added fee – yay capitalism!) and will likely do so, especially for borderline borrowers. The additional step and cost will probably be negligible for an industry accustomed to obsessive attention to detail.
These are nationwide figures and estimates; the outcome in Massachusetts remains to be seen. As we’re all aware, home prices in many Bay State communities are shattering median records; the statewide median in June approached $400,000. Industry standard 20 percent down on $400,000 is $80,000, which is well out of reach for a large portion of the population.
The loan programs offered by the GSEs are the only hope for a lot of Massachusetts’ borrowers; low down payment options and increasingly flexible credit score requirements are an avenue to homeownership for many first-time buyers. Of course there’s the PMI and flexible rate issues, but the way home prices are appreciating in this state, buyers become sellers long before those deadlines arise. And many of them turn enough of a profit to put 20 percent down with a conventional 30-year fixed mortgage on their second home purchase.
Residential real estate is a trillion-dollar industry. As long as the good times keep rolling there’s a lot of money to be made for all parties. The market as it stands today can absolutely withstand some loosening up after the sharp retraction following the recession; not only can it withstand it, it probably needs it.
The economic benefits of homeownership are well documented, and too often out of reach for too many people. As long as the good times keep rolling and home prices and mortgage rates keep rising – and as long as caution remains the watch word in lending – opening the economic benefits of homeownership to more people benefits all of the commonwealth’s residents – and indeed, all Americans.
