Monday, March 15, 2010

Guidelines Are More Relaxed for Mortgage Insurance!

Here's something we haven't seen in a long time - more relaxed underwriting guidelines!

Some of the private mortgage insurance companies recently raised the debt-to-income ratio (DTI) from 41% to 45%. You still need to have a good credit score (700) to take advantage of the higher ratio, but it's the first thing we've seen in more than two years that signals the tightening of the guidelines may be nearing an end.

Just don't confuse this with a return to sub-prime loans. The mortgage insurance (MI) guidelines used to be routinely ignored by everyone, including the MI companies. MI underwriting was a rubber stamp process. If the lender approved a loan, so did they.

Then the MI companies started writing those checks for millions of dollars to the lenders for all the houses that went into foreclosure and the MI companies that were still in business became very serious about following the guidelines.

Remember that the MI guidelines are always the strictest guidelines. A conventional loan gets underwritten three times: once by Fannie Mae or Freddie Mac, again by the lender, and a third time by the MI company. The MI company is the one to write the check if the borrower stops paying, so naturally, they have the strictest guidelines.

We've said this countless times, but not reading the guidelines is why loans fall apart. If your lender reads, your loan will close. If he doesn't read very well, then the loan probably won't close.

Want to have some fun? Ask your lender where to find the online Fannie Mae guidelines. Chances are pretty good he won't have the slightest clue where to find them because he's never read them. Mock him. Then dump him.

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