Self-employed borrowers still struggle to qualify for government guaranteed loans – press enterprise


Last week, Fannie Mae launched a new program called Refi Now to help high-debt low-income borrowers qualify for a mortgage.

The standard for qualified borrowers is that debt should not exceed 50% of their income. Under Refi Now, the eligible debt ratios reach an astronomical rate of 65%.

Okay. Fair enough. But how about taking a break from heavily indebted self-employed borrowers as well?

It seems the answer for them is Refi Never.

Fannie Mae’s (and Freddie Mac’s) draconian COVID-19 self-employment underwriting restrictions implemented exactly one year ago are still in effect today.

The COVID goal has become all about your business then and now.

In addition to providing tax returns of at least one year, borrowers were required to provide interim financial statements.

Profit and loss accounts since the start of the year were expected to keep pace with last year’s income. Insurers speculated that declines in income since the start of the year indicated that the borrowers’ business was spinning around the drain. Deny the credit now. Abort.

The new rules have killed the prospect of getting a cheaper mortgage for too many.

For example, my store turned down about half of independent borrowers because they couldn’t qualify for a loan. Yes, half.

Profit and loss accounts since the start of the year have become an obsession with underwriting. Some lenders have allowed no tolerance for a drop in income. Others said there were no dice with a dive of more than 10%. And at least one lender I know of allows up to 25% drop as long as the borrower still qualifies with the drop in income.

Buy-and-refinance worthy borrowers who wanted cheap Fannie and Freddie rates also had to explain to their mortgage originators the granular details of the company’s bank statements that coincided with their P&L. What better truth serum for Fannie and Freddie than something bordering on a forensic audit?

Independent candidates were offended by the exam. It was like a search for a financial hole. But they accepted it because they wanted the lowest mortgage rates in modern history.

Others just said no. A few have expressed their anger in unacceptable words for you.

How else could lenders decipher financially strong applicants from weaker ones? Better safe than sorry in F&F eyes.

Yes, many businesses have crashed, burned down and closed. But many have survived and thrived on luck or government support like the PPP program.

Corporate bankruptcy attorney Richard Golubow of Winthrop, Golubow and Hollander pointed out that less gross income can always translate into more profit because of less travel, reduced office costs and no out-of-pocket expenses. entertainment during COVID.

“People worked harder,” Golubow said.

Corporate bankruptcy filings are on the decline. According to Epiq AACER Bankruptcy Information Services, the United States saw an approximately 19% decline in corporate bankruptcy filings under Chapter 11 and 13 in 2020 compared to the previous year. Since the start of the year, 2021 deposits are down more than 30%.

Figures for California BK companies have fallen by around 40% in 2020, with deposits down 10% this year so far, according to figures from Epiq AACER.

As of this week, mortgage abstentions are down to 4.16%, according to the Mortgage Bankers Association. The abstention figures were 8.55% a year ago.

More than 14 million borrowers could save an average of $ 283 per month through refinancing, according to mortgage data company Black Knight. California has nearly 1.9 million applicants who could save an average of $ 386 per month. Los Angeles, Orange, Riverside and San Bernardino counties have 952,000 borrowers ready to refinance.

How many independent borrowers could Fannie and Freddie help?

Federal Mortgage Regulatory Agency officials could not be reached on whether Fan and Fred will revert to pre-COVID self-employment underwriting rules.

Freddie Mac Rate News: The 30-year fixed rate averaged 2.96%, 3 basis points lower than last week. The 15-year fixed rate averaged 2.23%, 4 basis points lower than last week.

The Mortgage Bankers Association reported a 3.1% drop in mortgage application volume from the previous week.

At the end of the line : Assuming a borrower gets the 30-year average fixed rate on a compliant loan of $ 548,250, last year’s payment was $ 74 more than this week’s payment of $ 2,300.

What I see: Locally, well-qualified borrowers can obtain the following fixed rate mortgages with a cost of 1 point: a 30-year FHA at 2.25%, a 15-year conventional at 1.99%, a 30-year conventional at 2.625%, a 15- a conventional high balance over one year ($ 548,251 to $ 822,375) at 2.125%, a conventional high balance over 30 years at 2.75% and a jumbo over 30 years set at 2.75% .

Eye-catcher loan of the week: A 30-year fixed at 3% free of charge.

Jeff Lazerson is a mortgage broker. He can be reached at 949-334-2424 or [email protected] Its website is

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