Mortgage Lending: Understanding Risk Based Underwriting

As Mortgage Professionals we believe part of our responsibility is to educate interested parties on changes taking place in our industry. Today I would like to briefly address some of the major reasons why less and less individuals can get approved for a mortgage loan today. Since the collapse of the sub-prime market last year, there have been dramatic changes in the way mortgage lenders consider credit. In January of this year, the largest purchasers of home loans Fannie Mae and Freddie Mac introduced changes to their underwriting criteria called "Loan Level Price Adjustments," or "Risk Based Pricing." Basically, this new criteria requires borrowers to have higher credit score levels and more equity in transactions to qualify for a loan. This alone has had the effect of greatly narrowing the pool of potential borrowers and home buyers. Even when a borrower can meet the new criteria, the pricing can add 0.25% to 5.00% to the cost of a loan. Additional fees can be assessed where a person’s credit score is below 740 and the down payment or equity is less that 20%. This has had the expected effect on home sales, but also on the ability for existing homeowners with higher cost loans to refinance for a better rate or term. Gone are many of the loan products previously available which made purchasing homes easier for more people. Stated Income loans targeted to self employed individuals have virtually disappeared. The alternative available to borrowers today with credit challenges or limited money to put down on a purchase is an FHA insured loan. These are loans guaranteed by the Federal Housing Authority  and require borrowers to put down a minimum of 3% of the purchase price as down payment and credit scores in the mid 500's range. These standards are also being reviewed.  Times are changing and you can no longer simply shop for a mortgage loan based on the lowest interest rate. The trick today is to get good advise from an experienced mortgage professional and qualify for a loan that fits your particular circumstances. Eagle Nationwide is a national mortgage lender providing mortgage loans secured by residential properties in all 50 states and the District of Columbia.We are an FHA Approved Lender dedicated to serving individuals and professionals working in today’s difficult mortgage environment.