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Summary: Right after the housing crisis over a decade ago, mortgage underwriting tightened a great deal. They they have loosened a great deal since then, making it somewhat easier for buyers to secure mortgages to buy a home in Washington and nationwide, but recently, they have started to tighten again. This article will help give you an idea of how easy or difficult it may be to secure a mortgage in Washington.
According to reports, mortgage underwriting guidelines for conventional home loans have eased in recent years but have tightened slightly over recent months. This is something we have reported on in the past. This a topic that’s important to home buyers in Washington State (where we are based) and elsewhere across the nation. How will the current mortgage underwriting criteria affect you?
According to Housing Wire, the Mortgage Bankers Association’s Mortgage Credit Availability Index (MCAI) decreased by 0.3% to 181.3 in February, January, and December. A decrease in the MCAI means that lending standards are tightening, while an increase means credit is loosening credit. Various entities have reported that mortgage underwriting guidelines have loosened in the last couple of years, but recent data shows they have tightened over the past few months.
Yet rejection rates for mortgages refinance, and credit cards decreased throughout 2019 compared to the year before, according to the Federal Reserve Bank of New York.
Conventional: This is a mortgage loan that’s originated (and sometimes insured) within the private sector, without government backing. This distinguishes it from FHA, VA, and other government-backed mortgage programs.
Conforming: This is a home loan that meets or “conforms” to the underwriting guidelines and parameters used by Fannie Mae and Freddie Mac. A conforming loan can be sold to Fannie and Freddie via the secondary mortgage market.
Conventional conforming loans account for the majority of overall loan volume in Washington State and nationwide. They’ve also become easier to obtain over the last few years, due to the continued easing of mortgage underwriting guidelines and requirements. But perhaps over the last few months, they may be showing signs of tightening in an effort to maintain creditworthiness among borrowers and reduce risk.
But Freddie Mac recently tightened its requirements surrounding the backing of mortgages, and the Treasury Department warned lenders against loosening their mortgage underwriting standards.
Despite the data showing a potential tightening of underwriting standards, debt levels are still high among many borrowers.
While lenders prefer that borrowers have a debt-to-income ratio (DTI) of no more than 43%, the number can be as high as 50% in some cases. This will depend on the creditworthiness of the buyer and the specific lender’s guidelines and practices. But accepting a 50% DTI is still risky practice. But it gives some borrowers the chance to secure a mortgage despite already-high debt loads.
Jumbo loans have increased quite a bit over recent months, as investors have been more willing to buy loans with lower credit scores and higher loan-to-value (LTV) ratios.
According to a recent article published in the Washington Post, the federal government has significantly increased its exposure to risky home loans.
So there has been a clearly documented increase in mortgage credit to borrowers with DTI ratios between 45% and 50%, as a result.
There has been a similar increase in the number of home loans going to borrowers with loan-to-value ratios above 95%. (Inversely, this means borrowers made down payments of less than 5%.) The share of home loans with an LTV ratio above 95% has grown steadily over the last few years.
Despite all this data – which some might say is somewhat conflicting – it’s up to the individual borrower and lender in terms of whether or not a mortgage application will be accepted, and what terms will be provided if the mortgage is approved.
Are you curious about home loans in Washington or are ready to apply for one? We can help. Sammamish Mortgage is a local, family-owned company based in Bellevue, Washington. We serve the entire state, as well as the broader Pacific Northwest region that includes Idaho, Colorado, and Oregon. We offer a wide variety of mortgage programs and products with flexible qualification criteria and have been doing so since 1992. Please contact us if you have mortgage-related questions.
Fannie Mae and Freddie Mac have been in the news quite a bit over the past few years, so it’s a good time to do a refresher on who they are and what role they play in the real estate market.
In today’s blog post we’ll share how you can provide paperwork and other evidence to show your mortgage lender that you’re a quality applicant who has the ability to make their payments.