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During May, two major changes will allow millions of new borrowers to enter the housing market.
The first change to take effect this month is the nation’s three major credit rating agencies – Equifax, TransUnion and Experian – will drop tax liens and civil judgements from consumers’ profiles if the information isn’t complete, according to an article by Diana Olick for CNBC.
Roughly 12 million U.S. consumers, or about 6% of the total U.S. population that has FICO credit scores, will see increases in those scores as a result of this change.
From the article:
"It's a significant impact for still a very large number of people," said Thomas Brown, senior vice president of financial services at LexisNexis, who is concerned that the move will add significant risk to the mortgage system.
"If you look at someone that has a tax lien or a civil judgment, they can be anywhere from two to more than five times more risky just because of the presence of that information," he said. "That's very, very significant."
The GSEs are also making major changes in the market. Recently, Fannie Mae raised its debt-to-income level in order to further expand mortgage lending.
From the article:
In addition to the FICO changes, mortgage giants Fannie Mae and Freddie Mac are allowing borrowers to have higher levels of debt and still qualify for a home loan. The two are raising their debt-to-income ratio limit to 50 percent of pretax income from 45 percent. That is designed to help those with high levels of student debt. That means consumers could be saddled with even more debt, heightening the risk of default, but the argument for it appears to be that risk in the market now is unnecessarily low.
