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Monday, October 18, 2010

Qualified? Home lenders saying not so fast

This due to normal underwriting standards coming back and the foreclosure gate raising the costs of business.
Banks are a lot pickier today. To protect themselves from defaults, they have sharply increased underwriting requirements — and paperwork — needed to get a loan. They've adopted less agreeable views on credit cards and other forms of revolving debt, investor properties and income history.
The crackdown comes as major banks find themselves mired in controversy at the other end of the credit spectrum. What is described by some as a technical error — signing thousands of affidavits for foreclosures without proper review — has turned into a political scuffle ahead of next month's U.S. elections. Facing pressure from U.S. lawmakers, Bank of America said on Friday it would halt foreclosures in all states, fueling concern that zombie outstanding loans will further hinder housing's rebound from its worst crisis since the 1930s.
Debt, Home Valuation, and Appraisals
Last month, Fannie Mae said it will require lenders to include all revolving debt when considering a borrower's finances. A lender could exclude those debts if there were 10 or fewer payments remaining under old rules.
Fannie Mae also expanded the requirement that gifts that provide downpayment assistance or temporarily help a borrower's financial condition be documented to all loans, not just when the mortgage is 95 percent or more of a home's value.
"Before, they may have not been as concerned with a 70 percent mortgage with a gift letter," said Brad Blackwell, an executive vice president and national sales manager for Wells Fargo. "They may have said, 'we don't lose on this one.'"
It's not just income that is questioned. With foreclosures rising, home values have been slippery targets.
So Fannie Mae and Freddie Mac have been applying their own home valuation model to loan applications as a check to the lender's assessment, some loan officers said. If a lender's appraisal is higher than the model's, questions begin to fly, they said.
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