Apr 26, 2011

Mortgage denied: Sometimes, for no good reason...

According to a report in CNN, Getting a mortgage just keeps getting tougher, and many homebuyers are getting rejected for loans they could easily afford.

The issue: Tighter standards from Fannie Mae and Freddie Mac, the government entities that back mortgages made by banks.

Banks are reluctant to make loans without the Fannie and Freddie guarantee, and loans backed by them account for just about every mortgage written these days.

In 2009, the agencies lifted the minimum credit score that borrowers must have from 580 to 620. That's probably for the best.

But they've pushed through a host of other requirements as well, and that means real estate deals don't get done, even for some relatively low-risk borrowers.

"You can have one Fannie/Freddie guideline you violate and that gets you rejected," said Alan Rosenbaum of GuardHill Financial.

A quarter of all mortgage loan applicants get denied for loans, according to the Federal Reserve. Many other potential homebuyers never even try to get loans, said Jerry Howard, president of the National Association of Home Builders.

"The pendulum has swung too far in the other direction," Howard said. "This overreaction is retarding the housing market recovery." (Homes: What a million bucks buys)

Here are some of the reasons that banks must turn down borrowers for mortgages:
Too few of the condos in your association have been sold

For Fannie/Freddie lenders to approve a mortgage to finance purchase of a condo, a large majority of the units -- 70% -- have to be already sold or under contract to individuals. Before 2009, the threshold was 51%.

If more than 30% are still owned by the company that built the complex or sponsored its conversion from rental units, the mortgage will be denied, no matter how qualified the buyer is.

read more visit- http://money.cnn.com/2011/04/19/real_estate/low_risk_mortgage_denied/index.htm

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