BluefoxToday blog : Fannie Mae Ushers In Tougher Guidelines January 2011

Fannie Mae Ushers In Tougher Guidelines January 2011

45 % is the new magic numberStarting in January, 2011 the next part of the journey in underwriting loans that are "smart" and will "survive" the uncertain real estate market begins.  It's being called the Loan Quality Initiative, or LQI.

Fannie Mae's system will "Fail" loans that might otherwise be approved, if they do not meet mandatory Debt To Income Ratios... NO EXCEPTIONS.  45 is the hard and fast maximum number.

This is significant - because verified High Liquid Assets have ALWAYS been considered an "off setting" factor.

Let me give you an example... Let's say you are moving from California to be closer to all of your children here in North Carolina.  If you own a home in California, and you've decided to rent it, instead of trying to sell it right now... we have to count that payment in your ratio.  

Let's say with both your new house payment, and your "old" house payment, your ratio is 49 percent.  Now your ratio is not REALLY that high, because you are going to get rent to offset your payment in California - but for the computer underwriting the loan, we won't be giving you credit for that rental income until you've received it for 12 months.

Fine, you have a 48 percent Debt to Income Ratio... if you have 401Ks, stock accounts, CDs, Money Market Accounts that total a couple hundred thousand - we could get that loan approved. (we actually closed this exact scenario last month).

Starting in January of 2011 - we would be suggesting that you buy a smaller home here, or put more money down, or do SOMETHING to get your ratio to 45%... makes FHA Mortgage Loans in NC look more attractive #justsayin'.  Wish our maximum FHA loan was higher than the $295,000 cap!

If you have questions about qualifying for a home in North Carolina - call Steve and Eleanor Thorne, 919-649-5058 Certified Mortgage Professionals.  We have the Best Rates and the Lowest Fees available.!

Comment balloon 7 commentsEleanor Thorne • September 19 2010 10:37AM


There are important long term benefits to tightening up the requirements. In the short term this will increase foreclosures and short sale volume. The more buyers get shut out of home buying the harder it is to sell houses which cause a decline in values.

Posted by Dave Halpern, Louisville Short Sale Expert (Keller Williams Realty Louisville East (502) 664-7827) over 10 years ago

Canadian Mortgage guidelines have been 32% Loan to Value with a maximum 40% TOTAL debt service ratio for a long time... Yes, we are a conservative bunch up north, but in the end, our real estate market has weathered the storms - with few foreclosures.  Short sales aren't in our vocabulary (yet, at least) 

Posted by Wendy Betts over 10 years ago

Wonder what will happen between now and January 2011. I think people are buying cars instead of houses right now. I went car hunting with a friend yesterday (for her, not me!), and was amazed at how busy the dealership was. And we left in a beautiful new (1-owner) Acura.

Posted by Susie Blackmon, Ocala, Horses, Western Wear, Horse Farms, Marketing over 10 years ago

Dave and Wendy - I totally understand why they want tougher underwriting standards - logically though, making 45 the hard and fast rule, isn't going to "fix" the problem.  Tougher UNDERWRITING (at this point) is NOT the answer JMHO!  I probably feel that way because I'm in NC.  We have the TOUGHEST State Regulated rules in the Country.  We haven't been able to do NINA loans, or No Doc loans for YEARS (State Law).

Susie - yep, will be interesting to see how it shakes out between now and the end of the year.

Posted by Eleanor Thorne, Equity Resources 919-649-5058 (Equity Resources) over 10 years ago

This one seems OUCH!  I agree that this could cause less buyers in the pool but our financed second home market is not *that* strong!

It's mostly cash and FHA first time types.

Posted by Renée Donohue~Home Photography, Western Michigan Real Estate Photographer (Savvy Home Pix) over 10 years ago


This is expected as Fannie, and Freddie, try to cut their losses,  and maybe survive as going concerns.

Posted by Esko Kiuru over 10 years ago

Hi Eleanor,

Tougher lending guidelines?

There's a thought!

Yes it is harder to get a loan. In the middle of the toughest times in a century, everyone is trying to figure out what the problem was, and how to correct so it doesn't continue to happen.


Posted by Phil Leng, Phil Leng - Retired (Retired) about 10 years ago