Further tightening of credit guidelines

For those of us who have been hoping for the credit markets to show signs of stabilization we can keep on waiting.

Freddie Mac announced last week that they would no longer issue or accept underwriting approvals knows as “accept plus” approvals.  These approvals, which were mostly earned by borrowers with high credit scores and large down payments, featured little to no income documentation requirements.  In essence, these were almost like “stated income” loans because the borrower would not have to provide any income documents to confirm the income they listed on their application.

For example, we would expect that an applicant buying a primary residence with a credit score> 740 and >30% down would likely receive an “accept plus” approval.

Freddie Mac’s move to eliminate “accept plus” approvals is another sign that lenders are acting with extreme caution.  Unfortunately this move will also negatively impact many more applicants ability to buy.  However, I would expect that this will also create a niche for a private institution to

You can read the announcement at this link.

It’s the end of an era……

Wells Fargo announced today that after March 28, 2008 they would no longer accept “stated income” applications. “Stated Income” loans grew popular over the past few years especially for applicants who were self-employed and reported large deductions on their tax returns. The program allowed applicants such as this to “state” their income on their application without documenting or proving this for the underwriter.

Wells Fargo was one of the last investors out there who was approving these loans but now it looks like this flexibility will be lost at least for the foreseeable future.