A couple of significant changes in the mortgage market go into effect this month.

  1. Borrowers will see a bump in their FICO scores due to the removal of certain liens and judgments.  This is not a market-based change but a response to legal action.
  2. Fannie Mae and Freddie Mac are increasing their debt-to-income ratio limit to 50% of pretax income (up from 45%).  The move is purportedly to help those with high levels of student debt.

In a related item expect lenders to loosen underwriting standards.  Interest rates have crept up over the past couple of weeks slowing the refinancing boom.  Higher home prices have resulted in fewer outright purchases.  Lenders are left competing for a shrinking market of borrowers.

The upside of these changes is that more borrowers should qualify for a home loan.  The downside is that more risk will be borne by the mortgage market.  Ultimately this means losses will be paid by taxpayers given that Fannie and Freddie remain under government conservatorship.