The Easing of Credit Standards Continues

Just a brief update on the demise of the mortgage industry in the good old U.S.S.A.

Fannie Mae recently announced two things that really caught my attention. The first one being that their automated underwriting system (AUS) will be issuing approvals at up to 50% (used to be 45%) of an applicant's gross monthly income. Gross, not Net income. While this was happening on certain transactions in the past, the difference is that they are now removing "certain additional compensating factors". What does this mean? They will no longer be looking at things like how long you have been on your job, or if you have a lot of money in savings, retirement, etc. The approvals will be more loosely applied without factors historically used to make the lender(s) feel better about giving higher risk loans.

The other announcement was that the same AUS update will have more approvals issued requiring only one year of tax returns for self-employed individuals. Fannie Mae has long taken the stance that two years of tax returns are required (most of the time) to properly analyze a borrower's income trend. The idea being that self-employed borrower's are higher risk.

There are also reports that new construction homes are on the decline. These are all red flags indicating a downturn in the housing/mortgage market. The more the mortgage lenders get desperate for business, the more the remove the strict guidelines. Time to abandon what has traditionally worked so they can make more money. Of course, the "mainstream media" chooses to ignore things like this. The stock market is up so everything is good, right? Wrong. Don't be fooled, my friends. Dark days are ahead.

CJ