WASHINGTON–Effective at the end of July, Fannie Mae said its automated underwriting solution will begin approving loans with debt-to-income ratios as high as 50% without “additional compensating factors.”
Fannie Mae currently limits debt-to-income ratios at 45% to grant an approval.
But the company has also been approving borrowers with ratios between 45% and 50% in the event certain compensating factors were met, such as a downpayment of least 20% and at least 12 months’ worth of “reserves” in various savings accounts. Its updated software will not require those compensating factors.
Fannie Mae said it made the change following analysis of many years of payment history on loans between 45% and 50%. The company declined to say what it projects the change will mean to approval volume.
There are exceptions to the new policy. Borrowers will still be required to have the right combination of loan-to-value ratio, credit history, reserves and other factors. In a statement, Fannie said the change is “consistent with our commitment to sustainable homeownership and with the safe and sound operation of our business.”
Consumer groups have generally welcomed the change, pointing out that many renters already pay more than 50% of their income in rent.