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Friday, November 19, 2010

FNMA: Hellbent on more structural misery in America


Can you believe that FNMA is adding yet another round of credit requirements?

If there is a quick way to neuter accommodating monetary policy, it would be to make sure that low rates matter less.

Now FNMA is locking out more borrowers. This is timely? The time to tighten credit standards is at the top of the cycle, not the bottom.

The latest. Are there any statistics that truly justify this?

  • -A whopping 10% shift in debt-to-income ratio. Like the prior guidelines, probably no phase-in period. Consider what this means for people who are committed to refinancing, to take advantage of lower rates or because they took advantage of a 3 or 5 year ARM!
  • -A single missed payment will now cost 5% penalty added to debt-to-income. No info on what the lookback period is. The predictive content of a single missed payment must be very small, at the margin, right?
  • -Borrowers with 10 payments left in a special new category
  • -The tyranny of FICO continues. If you miss a single credit-card or student-loan payment, you face a whopping 5% penalty.
  • -After upping the cap on bankruptcy workout, they are now doing the same for foreclosure, to seven years. These baffle me the most. It's like admitting that all their ramped-up loan-level adjustments and new equity requirements are bunk. They still need a special category.