Fannie Mae Toughens Lending Regulations

Article excerpt

WASHINGTON - The nation's main wholesale dealer in home mortgages announced changes Monday that will make it more difficult for first-time homebuyers to qualify for conventional loans.

David O. Maxwell, chairman of the Federal National Mortgage Association, said the revised standards for loans Fannie Mae will purchase are aimed mostly at mortgages where the buyer puts up less than 10 percent for a down payment.

It is foreclosed loans in that category that have caused serious losses for the private mortgage underwriting firm, Maxwell said.

He said the stricter standards being imposed Oct. 1 on mortgages qualified for Fannie Mae re-purchase are necessary because the kind of housing inflation of the 1970s that made almost any home loana profitable one is no longer present in the market.

With house values generally not rising any more than inflation - and in some cases at a slower rate - a home owner strapped to make payments cannot rely on a sharply higher home value to enable himto sell without taking a loss.

As a result, said Maxwell, many owners simply ""walk away'' from the loan, leaving private insurors and mortgage lenders to absorb the loss.

Maxwell said he had no estimate on the number of people who would be unable to qualify for mortgages under the new standards.

The major change announced Monday increases the required amount of income a borrower needs to qualify for mortgage loans with down payments of less than 10 percent.

Under the new standard, a borrower's monthly housing expenses will not be allowed to exceed 25 percent of gross monthly income and housing expenses plus installment debt cannot exceed 33 percent.

The old standard was 28 percent and 36 percent and there were provisions for exceptions in certain cases. There will be no exceptions under the new rules. …