Fannie Mae Now Offering Mortgages to Ghosts

This may immediately have you think back to the days of getting a mortgage for your home with no documentation and putting nothing down, but it looks like it will be a little different this time.

In the financial world, anyone who has no credit and no credit score has been called “a ghost”.  So this headline may not be quite as onerous as it sounds.  One may ask “how can you possibly provide a 30 year mortgage without checking someone’s credit score”.  Well, it’s important to keep in mind, we didn’t have official “credit scores for mortgages” until around 1995.  Home buyers were able to secure a mortgage before then.

How Will Fannie Mae Provide No Credit Report Mortgages?

Fannie will be utilizing a manual process for people requesting a no credit report mortgage.  They will still run a credit report on you, but if the report (from Equifax, Experian or TransUnion) comes back without a credit score, which the case is for people with very little or no credit (ghosts), they now have a new process.  Before, if you didn’t have a credit score, you were immediately disqualified from obtaining a mortgage.

Minimums to Qualify For a Loan

There are some minimum requirements that a ghost will need in order to be approved for a mortgage by Fannie Mae.  You will need a minimum of 10% down payment. This is more than many of the Fannie Mae mortgages, but since the risk goes up without a credit report, you will need more down.  The good side of that is 100% of your 10% down payment can be in the form of a non-repayable gift.  In addition, you will need to live in the home (be your primary residence) and the maximum you qualify for will be $417,000.  Needless to say, speak with your loan officer for all of the details for qualifying for a Fannie May mortgage.

How Will This Affect Lakeview Sales?

“With the influx of a younger generation looking for Lakeview homes for sale, this can be a tremendous boost for Lakeview real estate” says Kathy Marshall of Engel & Völkers, a leading real estate broker in Lakeview New Orleans.  This opens an opportunity to home ownership to a younger generation that may not have established credit, but otherwise a good financial risk.

Why Would Fannie Mae Do This?

Stan Baldwin of Credit Report Seller Information Research said “Thirty percent of bureau data is inaccurate”.  This can cause many otherwise qualified people to not be able to obtain financing on their new home.  Also, with many newcomers to credit, Fannie May doesn’t want to limit potential homeowners, that simply may not have too much credit history, from obtaining home ownership.

What About The Interest Rate?

If you are a ghost and have no credit score, Fannie Mae will put you in their lowest allowable FICO bucket, which is 620.  Since they are simply “assigning you a credit score”, they are putting you in at the low end of the spectrum.  For people (ghosts and otherwise) that get Fannie May approval at the 620 FICO score level will get a hit to the rate of 0.625.  Although people with a credit score of 620 do pay a higher interest rate, considering rates are at historic lows still makes home ownership very affordable.

Is Readily Available?

Keep in mind that a mortgage insurance company needs to insure the remainder of the loan.  That being said, as of now, only Radian and Arch are currently writing mortgage insurance on these types of loan approvals.  Currently Radian is pricing these mortgage insurance rates at 1.10 % above your base interest rate, which seems very affordable.  As more mortgage insurance companies come on line, we expect to see this loan product more widely used.