Smart Borrower Blog

Market Changes Could Mean Looser Mortgage Standards

Jul 5th, 2017 @ 9:22 PM by Amber Nelson

Those who have been locked out of the housing market may soon catch a break. With two significant changes taking place in the U.S. mortgage realm this month, millions of would-be borrowers may be able to qualify for financing.

The first change involves credit scores. The three major credit reporting agencies, Equifax, Experian, and TransUnion will be changing their policy towards tax liens and civil judgements. Any lien or judgment must include the person’s name, address and either birthday or Social security number.

There are enough liens and judgments out there without all of that information to affect many of the 15 million consumers that currently have those blights on their credit reports. The idea is to make sure that those who have had a lien or judgment mistakenly filed against them will not suffer for it in their credit. However, for those who have legitimately earned those credit dings, this new change could raise their credit score by 20 points, according to credit rating firm Fair Isaac Corp. (FICO). This could mean some borrowers would all of a sudden appear to be much less of a lending risk than they are, potentially allowing them to get home loans for which they may not otherwise qualify.

The second change come from mortgage guarantors Fannie Mae and Freddie Mac. As of July, they will raise the debt-to-income ratio for borrowers from 45 percent of their pretax income to 50 percent. The change is directed as those with high student loan debt levels.

“We’re changing the underwriting criteria, and we think the additional increment of risk for making that change is very small,” said Fannie Mae Chief Economist Doug Duncan. “Given how pristine credit has been post-crisis, we don’t feel that is an unreasonable risk to take.”

Since mortgage loan underwriting standards tightened after the housing collapse in 2008, only those with the best of credit have been able to qualify for home loans and the resulting mortgage default rate has fallen well below historical averages.

Duncan added, “We look at all the other criteria that are information rich, in terms of assessing that individual’s risk profile, and they have to look good in all those other areas,” he added.

This change could open up homeownership to many younger buyers, who are recently out of school, with good jobs but with large student debt to pay off. It also means Fannie and Freddie could be taking on higher levels of risk, with any losses ultimately resting with tax payers.

About Amber Nelson
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to and

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