Fannie Mae to Drop Minimum Credit Score for Homebuyers

[hamsterjill]

10. Because it generally means that the borrower can't afford the loan.

Sad, but true. I worked in real estate for many decades. People who barely qualify for a loan typically have a hard time making the payments and many wind up in foreclosure. I've seen homebuilders who have programs that get people qualified one way or another. Lots of back slapping and promises of everything.

Then the borrower gets behind on payments, and the mortgage company (which is usually an affiliate of the builder) swoops in and forecloses. Most people aren't able to sell a "used" home in a subdivision where a builder is still active because why buy a "used" home when you can get a new one with a warranty and better financing terms? Plus, many borrowers face foreclosure before enough time elapses for them to have gained any equity on the home, and the mortgage may be more than the value of the home.

The borrower has lost their down payment and whatever they've paid prior to the foreclosure, and the home goes on the market again. Typically an investor buys a block of them.

Lather. Rinse. Repeat.