Posted by WARREN MOSLER on November 27th, 2009
That nagging feeling that 0 rates are deflationary keeps lingering.
The following FNMA news might be even more deflationary than the Dubai news over time. I wonder if Congress was involved in this decision, as FNMA is a public/private partnership:
Oct. 25 (Reuters) —Fannie Mae plans to raise minimum credit score requirements next month and limit the amount of overall debt that borrowers can carry relative to their incomes, The Washington Post reported on Thursday.
Starting December 12, the automated system that the government-controlled mortgage finance company uses to approve loans will reject borrowers who have at least a 20 percent down payment but whose credit scores fall below 620 out of 850, the newspaper reported. Previously, the cut-off was 580.
Also, for borrowers with a 20 percent down payment, no more than 45 percent of their gross monthly income can go toward paying debts, the newspaper said.
A Fannie Mae spokesman told the newspaper that the limits reflect the company’s recent experience.
Loans to people with credit scores below 620 fell seriously behind at a rate approximately nine times higher than other loans purchased in the same period, Fannie Mae spokesman Brian Faith said. Loans taken out by borrowers with lots of debt also suffer higher levels of serious delinquency, he said.
“It’s not enough to help borrowers buy a home — we must also ensure that they can stay in the home over the long term,” Faith said in a statement to The Washington Post.