I have been avoiding writing on housing for several months now because each month would be a repetition of the previous month. Now it is time to update things.
We are now in the final stages before there occurs a housing crash. Consider us back in 2006 once again. Why? Because Fannie Mae just lowered their underwriting standards severely.
Fannie Mae just increased Debt Ratios from 43% to 50%. Immediately, a buyer’s purchasing power increased by 22%. Worst of all, there are no “compensating factors” required to decrease default risk.
Fannie did not stop there either. They increased allowable Loan to Value up to 95% for the Self Employed. Essentially, Fannie now has pretty much the same guidelines in these two categories as FHA loans.
What this means is that Fannie and the government has recognized that housing is stalling out. So they have lowered lending requirements to try and stop the market from deteriorating any further.
As many may remember, I predicted the upcoming crash to occur after the election. I also stated that the Fed increasing interest rates would negatively affect housing. The Fed has increased rates by .50 since Dec, with another increase likely this month. The increased Debt Ratios are designed to try and alleviate the harm of the increased rates.
You may also remember my posts about 50% Debt Ratios and Default Risk. 50% Debt Ratios have a significantly greater risk of default. The increase in Debt Ratios is granted on ill winds blowing through the housing market.
Buckle up! It is going to be another wild ride.