Mortgage Solutions For Borrowers With Student Loan Debt

Earlier today the mortgage giant Fannie Mae, which is currently run by the government, announced some various solutions for those that have excessive student loan debt tied to their credit profile. The mortgage solutions for borrowers with student loan debt is welcome by some and not welcome by others.  The side that welcomes the new initiatives say this will provide better home ownership opportunities to many communities across America.  Those on the side that think this is bad move say these are not real solutions and will put more American’s at greater risk (due to the structure of the mortgage solutions put forth by Fannie Mae).

The problem for many potential Fannie Mae mortgage solutionshomeowners or potential homeowners over the last 5 years is the amount of student loan debt their children have taken on and they co-signed for.  Under the current rules a mortgage company must include the payment’s amount in the debt to income calculations even if the child is paying back the loan.  Since technically they, the parents, are also responsible mortgage lenders include the debt payment amounts into the debt to income calculation.

Fannie Mae’s mortgage solution for borrower’s with student loan debt now allows a mortgage company to ignore student loan debt where the child is the primary borrower.  Also in this are car loans and credit cards that parents co-sign for their children.  Obviously the borrower has to prove they’re not the primary borrower for the accounts, before a lender will exclude them from the debt to income calculations.  As you can see these new mortgage solutions can present a major problem for banks when the economy slows because if the child can’t pay back the student loan it falls onto the parent.  It’s understandable that Fannie Mae wants to open the door for the purchase of a new home or the refinance of a current mortgage but the question is; Does the solution put significant risk back into the mortgage lending business?

Per Fannie Mae:

“Innovative Solutions for Making Homeownership Affordable for Borrowers with Student Debt
Because there is rarely a “one size fits all” approach to this issue, the policies announced today provide options to borrowers based on their individual circumstances:

  • Student Loan Cash-Out Refinance: Offers homeowners the flexibility to pay off high interest rate student debt while potentially refinancing to a lower mortgage interest rate.
  • Debt Paid by Others: Widens borrower eligibility to qualify for a home loan by excluding from the borrower’s debt-to-income ratio non-mortgage debt, such as credit cards, auto loans, and student loans, paid by someone else.
  • Student Debt Payment Calculation: Makes it more likely for borrowers with student debt to qualify for a loan by allowing lenders to accept student loan payment information on credit reports.”

-See more at: http://www.fanniemae.com/portal/media/financial-news/2017/student-loan-debt-6546.html