Two major lending changes mean it's suddenly easier to get a ... - CNBC

Credit reports, however, can have mistakes on them that end up sidelining consumers from qualifying for loans. Twenty percent of consumers have at least one mistake on one of their three credit reports, according to a Federal Trade Commission study. The concern is that those who do have legitimate liens and judgments against them will get credit that is undeserved.

“It doesn’t really do a consumer well to be extended credit that they can’t afford, they can’t reasonably service,” said Brown.

In addition to the FICO changes, mortgage giants Fannie Mae and Freddie Mac are allowing borrowers to have higher levels of debt and still qualify for a home loan. The two are raising their debt-to-income ratio limit to 50 percent of pretax income from 45 percent. That is designed to help those with high levels of student debt. That means consumers could be saddled with even more debt, heightening the risk of default, but the argument for it appears to be that risk in the market now is unnecessarily low.

“In this case, we’re changing the underwriting criteria, and we think the additional increment of risk for making that change is very small,” said Doug Duncan, Fannie Mae’s chief economist. “Given how pristine credit has been post-crisis, we don’t feel that is an unreasonable risk to take.”

During the last housing boom, anyone with a pulse could get a mortgage, but after the financial crisis, underwriting rules tightened significantly. As a result, current default rates on loans made in the last eight years are lower than historical norms. At the same time, younger borrowers with high levels of student loan debt are being left out of the housing recovery, unable to qualify for a home loan. Duncan said a consumer’s debt level is just one of many factors considered by lenders when underwriting a mortgage.

“We look at all the other criteria that are information rich, in terms of assessing that individual’s risk profile, and they have to look good in all those other areas,” he added.

The level of risk to the mortgage marketplace, banks and nonbank lenders alike, will rise. Fannie Mae and Freddie Mac are still under government conservatorship, which means losses would be incurred by taxpayers.

Two major lending changes mean it's suddenly easier to get a ... - CNBC