by Calculated Risk on 12/03/2008 11:51:00 AM

I've heard from industry insiders (not confirmed) that Fannie Mae is putting a limit on the debt service-to-income (DTI) ratio of borrowers regardless of the Automated Underwriting System (AUS) decisions for loans requiring mortgage insurance (Loan-to-value (LTV) > 80%). This is apparently due to pressure from the mortgage insurers (MIs).

These are essentially caps on DTI. Previously the max was determined by the AUS.

For conforming loans in stable markets (as defined by MIs), the DTI limit is 45% when PMI is required (LTV > 80%). For expanded approval loans in stable markets, the DTI limit is 41%.

In soft markets, the max DTI is 41%. Previously this could be exceeded if approved by DU/LP (Desktop Underwriter Version 7.0® / Loan Prospector® ).

This raises a great point. The MIs were locked out (luckily for them) of many of the worst loans, because Wall Street securitized 2nds instead of using MI. Now that MI is needed again for loans with LTVs greater than 80%, the MIs once again have a say in the underwriting process.

I'm sure Krugman would respond with YHTMAAAIYP.