LOTS of mortgage news has been rolling out this week – 50 year mortgages, portable mortgages, no FICO requirement for conventional loans – unfortunately for consumers, the news has more closely resembled tabloid stories than actual, relevant information. For consumers, it’s important to note a few things about this week’s news before we get into the one real topic that can impact mortgage customers.

The 50 year mortgage? 0 details were provided, so for now, despite everyone in the mortgage world feeling the need to add an opinion, it simply doesn’t exist, and if it ends up existing, no one knows what the terms or details of the product will look like. Portable mortgages? They DO exist, but in other countries – countries that don’t offer housing consumers 30 year fixed rate mortgages. Think about it from a banking perspective – if the rate of return on lent money varies based on the market, and banks always receive interest dollars commensurate with current market conditions, it makes sense to move a loan from one property to another. If a lender has locked a rate in for 30 years, it becomes much more difficult to leave that loan in place regardless of market conditions – portable mortgages in the US, in the current state of the US housing market, would come with sky high rates and fees…so high, that customers would likely simply stick to loans currently available.

And now, we come to the elimination of the minimum FICO score by Fannie Mae. Until now, desktop underwriter (Fannie Mae’s automated underwriting platform) would automatically decline a customer file if the FICO score submitted with the file was less than 620. This week, it was announced that loans will no longer be automatically declined if the FICO score is below that 620 FICO mark. Is this a big deal? Not really.

The systems used by Fannie Mae and Freddie Mac use algorithms to determine loan quality – for example, if a loan has a 621 FICO, some recent credit challenges, is a high loan to value (home is short on equity), and a customer has a high debt-to-income ratio with little savings, it’s unlikely the system would generate an approval even with the FICO score being higher than the 620 minimum previously in place. Also, Freddie Mac hasn’t had a minimum score threshold of 620, using their algorithm to determine loan acceptance – so this chance really brings Fannie Mae & Freddie Mac in closer alignment. So while it’s good news, and will result in some files being able to be underwritten to Fannie Mae guidelines that previously could only be reviewed by Freddie Mac, the overall impact to consumers and the industry is likely to be minimal.

Who Will Benefit?

Fannie Mae has some unique products and guidelines that differ slightly from Freddie Mac, so those customers who happen to qualify only under Fannie Mae guidlines AND with a sub-620 FICO score could see an approval with these changes. For example, sub-620 customers with low debt-to-income (DTI) ratios, a lot of home equity, and a high amount of savings could start seeing Fannie Mae approvals.

The vast majority of mortgage customers will see little to no change in approval status or loan process with the elimination of the 620 FICO minimum requirement. For the most part, it will be business as usual when it comes to getting a conventional loan.

And speaking of conventional loans – we offer extremely competitive pricing and one of the fastest turn times in the industry, so home buying with a mortgage from Catalyst is both easy and affordable! And with our technology systems, we can get a conventinoal refinance done in just a couple weeks! Questions about conventional loans, or curious about what your loan options are? Contact us today – we provide fast and free rate quotes, and our loan officers offer free consultations so you’re aware of all your options when it comes to home financing!

Written/Published by John Meussner, EVP Production