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Two major lending changes mean it's suddenly easier to get a mortgage

In the beginning of this August, major changes may have impacted millions of consumers who are looking to be qualified for home loans.

The first to change is that three of the biggest credit reporting agencies have decided to remove and exclude tax liens and civil judgment from consumer credit reports if the negative information does not include the customer's name, address and social security number or date of birth. By doing this, credit scores will improve as credit reports excludes negative information. What does this mean for you? If you have an incomplete and negative tax lien and civil debt in your credit report, the removal of this should have a great and positive impact for you and quite possibly will have an immediate boost in your credit score.

This change maybe beneficial for most people; however, it could be a downside to lenders. Now, some risky people who have had multiple tax liens and civil debt before, now will look less risky. In the end, if higher risk people end up with scores meant for low risk people, in time, credit can become more expensive for everyone.

Furthermore, Fannie Mae and Freddie Mac are now allowing borrowers with higher debt to qualify for home loans. Both are raising their debt-to-income ratio limit of pretax income from 45% to 50%. By doing this, it could mean that consumers may have even more debt and increase in risk of default.

Fannie Mae has announced that the DTI changes risks remains the same, which may move other parts of a borrower’s risk profile.

From the article:

"There is the belief that there is this windfall for consumers, that consumers will just be able to get more credit," said Brown of LexisNexis. "Well, the reality is the risk in the marketplace has not changed. The information that's used to assess risk is what's changing, and so for banks and others extending credit, if they want to maintain the same loss rates, they have to tighten credit somewhere else. It's just pure math."


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