July 10th, 2017 2:10 PM by Richard Sardella MLO.100007700
Two Important Changes Will Help Home Buyers
There have been very few changes to the conventional mortgage guidelines over the past several years. But two important changes take effect this month that may help home buyers to qualify for a mortgage easier.
The first change has to do with how much house payment a borrower can be approved for and the second important change will help with the borrower's credit profile.
First up is an important announcement from Fannie Mae that will now allow for a debt-to-income (DTI) ratio up to 50% from the previous maximum allowed of 45%. A DTI is the ratio of your gross salary vs. all of your current monthly debts like installment loan and credit card payments along with the newly proposed mortgage payment on the house that they are purchasing.
"In this case, we're changing the underwriting criteria, and we think the additional increment of risk for making that change is very small," said Doug Duncan, Fannie Mae's chief economist. "Given how pristine credit has been post-crisis, we don't feel that is an unreasonable risk to take."
But not ALL borrowers will be allowed to go as high as 50% on their DTI. Doug Duncan said, "We look at all the other criteria that are information rich, in terms of assessing that individual's risk profile, and they have to look good in all those other areas."
Credit Profile Changes: This change comes directly from the three main credit reporting bureaus. They announced that they will drop tax liens and civil judgments from some consumers' profiles if the information isn't complete. Specifically, the data must include the person's name, address, and either date of birth or Social Security number. A sizeable number of liens and judgments do not include this information and have subsequently caused some misrepresentations and mistakes.
This change, in some cases, may significantly increase a borrower's main credit score.
How Rates Move:
Conventional and Government (FHA and VA) lenders set their rates based on the pricing of Mortgage-Backed Securities (MBS) which are traded in real time, all day in the bond market. This means rates or loan fees (mortgage pricing) moves throughout the day, being affected by a variety of economic or political events. When MBS pricing goes up, mortgage rates or pricing generally goes down. When they fall, mortgage pricing goes up. Tracking these securities real-time is critical. For more information about the rate market, contact me directly. I’m among few mortgage professionals who have access to live trading screens during market hours.
Rates Currently Trending: Neutral
Mortgage rates are trending sideways this morning. Last week the MBS market worsened by -26 bps. This was enough to worsen mortgage rates or fees. Mortgage rates were relatively volatile last week.
This Week's Rate Forecast: Neutral
Three Things: These are the three things that have the greatest ability to impact mortgage rates this week. 1) Fed, 2) Geopolitical and 3) Domestic.
1) Fed: Fed Chair Janet Yellen will give her semiannual testimony before the Senate on Wednesday and the House on Thursday. Her prepared statement and responses to the seemingly unending wave of inane questions from elected officials could have a significant impact on mortgage rates. We also hear from several other Fed officials.
2) Geopolitical: The market is extremely interested in any new developments or progress with health care report in the Senate as well as Tax reform, which our Treasury Secretary says will still get done this year. We also are scheduled to increase our debt ceiling and have plenty of geopolitical concerns (North Korea, etc) across the pond that will influence bond trades.
3) Domestic: We have a lot of economic data that will hit this week with Retail Sales getting a lot of attention. But it will be the Producer Price and Consumer Price Indexes that will get the most attention.
Treasury Auctions This Week:
This Week's Potential Volatility: Average
We expect mortgage rates to trade in a fairly narrow range until Wednesday when Janet Yellen gives her testimony in front of the Senate. For the rest of the week we could see some mortgage rate volatility, particularly when you throw in CPI numbers on Friday.
If you are looking for the risks and benefits of locking your interest rate in today or floating your loan rate, contact your mortgage professional to discuss it with them.
Richard Sardella has been actively managing and providing services in the mortgage industry for over 27 years. Richard serves on the board of directors as President of Colorado Home Mortgages Inc.
All information furnished has been forwarded to you and is provided by thetbwsgroup only for informational purposes. Forecasting shall be considered as events which may be expected but not guaranteed. Neither the forwarding party and/or company nor thetbwsgroup assume any responsibility to any person who relies on information or forecasting contained in this report and disclaims all liability in respect to decisions or actions, or lack thereof based on any or all of the contents of this report.
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