Mortgage rates near record low

Mortgage rates are near historic lows, but lenders continue to make it harder to get a home loan.

The benchmark 30-year fixed-rate mortgage fell 16 basis points, to 5.19 percent, according to the Bankrate.com national survey of large lenders. A basis point is one-hundredth of 1 percentage point. The mortgages in this week's survey had an average total of 0.38 discount and origination points. One year ago, the mortgage index was 6.39 percent; four weeks ago, it was 5.32 percent.

The benchmark 15-year fixed-rate mortgage fell 11 basis points, to 4.61 percent. The benchmark 5/1 adjustable-rate mortgage fell 6 basis points, to 4.58 percent.

The 30-year fixed hasn't been this low since Bankrate's April 15 survey, when it fell to 5.18 percent. In the 24-year history of Bankrate's weekly survey, the all-time low was 5.13 percent, which was on April 1 this year.

For more than two years, mortgage financing giants Fannie Mae and Freddie Mac have gradually tightened lending standards in several ways. They imposed what's called "risk-based pricing" by levying fees on loans with certain characteristics -- for example, charging 3 percent of the loan amount for making a down payment of less than 25 percent while having a credit score below 660. And tacking on another fee of 0.75 percent of the loan amount for having a home equity line of credit.

Less debt allowed

Many mortgage loan decisions are made with the help of Fannie Mae's software program, called Desktop Underwriter. A new version of the software, called DU 8.0, will be rolled out the weekend of Dec. 12. It imposes a series of small changes in lending guidelines. When those alterations are added together, they could affect a noticeable number of borrowers, lenders say.

The most significant change, according to loan officers, is a restriction on the total amount of consumer debt that borrowers will be allowed to carry -- what's variously called the total expense ratio, total debt ratio or back-end debt ratio. To calculate the total debt ratio, the lender adds up all of the borrower's monthly debt payments -- mortgage, home equity loan, car loan, student loans, credit card payments and so on -- and divides that total by the monthly before-tax income.

Under the current lending guidelines, which expire in a month, some borrowers are able to get mortgages with back-end debt ratios of 55 percent or even higher. Only borrowers with high credit scores, who have a lot of equity (like, more than 50 percent) in their homes are likely to qualify for new mortgages with such high total-debt ratios. But it's possible.

That will change Dec. 12, with the introduction of DU 8.0. The maximum total expense ratio will be 45 percent, "with flexibilities offered up to 50 percent for certain loan case files with strong compensating factors," Fannie says in an explanatory note to loan officers. Those "flexibilities" will include high credit score and owning lots of equity in the house.

Lenders say Fannie's restriction will leave a few homeowners out in the cold, unable to refinance. For example, someone with a back-end ratio of 51 percent might not be able to refinance to a lower-rate loan with a back-end ratio of 46 percent.

Fannie raised the minimum allowable credit scores for all purchase and most refinance loans. Previously, the minimum credit score was 580. Now the minimum score will be 620. (There is no minimum credit score for refis under the Obama administration's Home Affordable Refinance program.)

Show your tax returns

All borrowers will have to sign a document (IRS Form 4506-T) that gives the lender permission to request transcripts of the borrower's federal income tax filings. This document will have to be signed twice -- once when applying for the loan, and again at closing. Expect the lender to review your tax records to find out if you told the truth about your income in past years.

Finally, Fannie imposed a new rule concerning the income of the "trailing second wage earner." If you move to take a new job and your spouse or partner hasn't yet found a job, you can no longer apply for a mortgage based on the co-applicant's "anticipated income." Many lenders already have stopped including anticipated income, anyway.

If you're in the market for a mortgage or refinance, you can look for the best interest rate by searching Bankrate's rate tables.