Major obstacles lie in income documentation, mortgage insurance rules
Income documentation requirements: One of the most damaging and unfair parts of the mortgage stringency is the extreme rigidity of the requirements for documenting income. Borrowers with credit scores near 800 and down payments above 20 percent are being turned down because they are self-employed and can't document adequate income. I looked in vain for any comment by the Fed on this insanity.
Private mortgage insurers are also more restrictive: The agencies require that loans with less than a 20 percent down payment or 20 percent equity carry mortgage insurance, and the insurers have their own requirements that have grown increasingly stiff.
I just checked the eligibility requirements of one carrier on a 90 percent loan (10 percent down payment), and found a minimum credit score of 660. That means that a 90 percent loan with a score of 620, which is acceptable to Fannie and Freddie, would be rejected by this insurer. The Fed ignores the role of private mortgage insurers.
The writer is professor of finance emeritus at the Wharton School of the University of Pennsylvania. Comments and questions can be left at www.mtgprofessor.com.
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