Mardi Boettcher's Blog

On June 8th, Fannie Mae issued a list of tougher policies that could directly affect thousands of buyers in the coming months, especially those involved in job-related transfers.

Reversing a long-standing policy, Fannie no longer will permit mortgage applicants to count the income of so-called “trailing spouses” in the household income to qualify for a loan.
A” trailing spouse” is one who joins his or her spouse or partner in a job-related move, but who has yet to obtain employment in the new location.
If the main breadwinner’s income isn’t sufficient to handle the mortgage, the loan application will be rejected; only when the trailing spouse has documented income in the new location will it be counted.

Therefore, some transfering couples will either have to qualify on the basis of one income” — forcing couples to “buy less house than they wanted” — or “they may have to rent for an extended period of time until the spouse or couple is re-employed.  If a couple must wait to purchase a new home until the spouse can find a new job, it might cause some to reconsider whether they want to make the job shift at all.  (It is estimated that about 800,000 households in the United States move in a typical year because of job transfers.)

The good news is that Freddie Mac still counts “trailing spouse” or co-borrower income for loan applications, but under strict guidelines:  The amount of the trailing co-borrower income cannot exceed 33 percent of the total qualifying income for the mortgage application.  That income cannot be from self-employment and the “trailing spouse” must have been continuously employed in the same occupation for at least two years preceding the relocation.  And the co-borrower must provide a statement of intent to find employment in the new location.  The loan officer or lender must also analyze the local employment market and verify that there are adequate opportunities and earnings potential for the co-borrower.
(I would like to know how they do that.  Anyone know?)

As part of its June 8 tightening of underwriting rules, Fannie Mae also announced that it plans to discount the values of all borrowers’ stock, bond, mutual fund and retirement fund holdings that are claimed toward the applicants’ financial reserves needed to qualify for a mortgage.  Fannie previously counted 100 percent of the claimed or documented value of stocks, bonds and mutual funds toward reserves but, now, it will discount them by 30 percent.  It seems too bad that they have to do that, but it certainly makes sense in this economic environment.

These changes will make it difficult for folks in the short term, but lenders needed to be more responsible about loaning money and we all benefit when everyone “does the right thing.”