The Grinch That Stole My Mortgage

The Grinch, which in this story is Fannie Mae, just stole Christmas. I must admit, that is dramatic, and not literally true. But they did potentially just steal your mortgage.

Fannie Mae’s current rules allow an underwriter to exclude revolving debt (i.e. credit card debt) from the debt-to-income (DTI) ratio if there are ten or fewer payments remaining. Fannie Mae will now require all revolving debts to be included in the DTI ratio regardless of the number of payments remaining. So this will make it a bit harder to qualify for a mortgage for some of us. And if your debt ratio was right on the edge before, you may now not qualify.

The underwriter usually must use the minimum monthly payment, as verified on the credit report. If the monthly payment is not on the credit report, to verify a payment the lender can get alternative documentation such as the credit card bills. If the monthly payment is not available by any means, then the underwriter must use 5% of the outstanding balance to determine the monthly payment. If you have a $10,000 balance, and you know you only pay a minimum payment of $200 a month, if you cannot clearly document the minimum payment, the underwriter will use 5%, or in this case $500 a month.

Taken alone these few changes are not earth shattering news, but combined with all the other guideline changes to appraisals, debt ratios, minimum credit scores and more, Fannie Mae is clearly continuing to tighten the standards by which it underwrites loans.