As for FHA, it’s a sleeping dog. The lenders know that beast will wake up eventually.

So the moral of my story is or my opinion is, the industry will suffer further in light of these changes and in the midst of rising unemployment, reduced hours. The average monthly gross for most people has dropped. I’ve got a client that works for Bank of America since 1981. We just closed her refi and it would not have been possible after Dec. 12 because her ratio is 56 based on 2008 income. Normally she’d be a tad over 50 using ytd because of regular bonuses and a pay increases, that is, except for 2008. Believe it or not – the underwriter wanted a letter from my borrower explaining the decline in her income for 2008. How moronic is that? Like anybody is ever going to forget what the heck happened in 2008. shhhheez!

So lenders are already on eggshells. They all are padding Fannie and Freddie’s guidelines to the worse case already in fear the agencies will give them the finger like they did last year.

Regarding the new 620 floor on FICOs – I haven’t seen a 640 yet that can afford the rate after the risk premiums are added on.

There’s an exception to the 45% rule. Can go to 50% with documented compensating factors. Still a cap is outrageous. We’re going back to the stone ages. Fannie Mae is FICO’s jilted lover now and she clearly wants to take back the controls.
Currently DU 7.1 allows debt ratios up the kazoo. Lol It’s the truth. I’ve seen as high as 59.99 (something like that) although I didn’t need it (we were good to go at 57.xx) but to see what it could do*** – Fantastic! Anyway, so the borrower, Mr. Arp, owns same two properties today that he owned in 2002. He would never, ever, default except for some catastrophe. For many reasons to lengthy to go into, it was a piece of cake, made sense and his financing is a benefit to this day.
I’ve heard stories of debt ratios in the low 60s. It’s not common place but maybe 1 out of 5. Most high back ends are refis. But if you know what you’re doing and are able to do the right thing without being influenced, it’s the only way to go because it benefits every aspect of the transaction – App to servicing, to sale.
There are ways to weed bad apples out of this industry without regulatory documenting us to death. Accountability isn’t always comfortable but it’ll do the trick. Don’t ask the SEC about it. Ask Bernie. (Oh whatta burn!)
As I’m typing this I’m recalling names of transactions where we were able to do things no one else could do. But for deserving people. Not at all the stereo typed “subprime” profile.
I read an article recently – this reporter was ranting how FHA has “loosened up” its guidelines and it’s the new subprime meltdown waiting to happen. Well, guess what? FHA and VA loans are either ran through Fannie’s DO or Freddie’s LP underwriting engine. We were doing dozens of 1st time buyer FHA purchases on 570 credit scores . Great fixed rates, little to zip down. All “good” loans – every single one I’ve ever done.
Imagine how many loans were made as subprime that could have been FHA. Most subprime purchases, for sure. The mortgage industry as a whole, even the regulators, truly failed the consumer on this, I think.

***Like Warren and that sweet Land Shark – caught it on youtube – FANTASTIC!