Changing Faces of Mortgage Qualification Guidelines - By: michael russell

Among all other criteria relating to the real estate and mortgage industry, one has undergone maximum changes. A criterion that has undergone such changes is the mortgage qualification guidelines. More than anything else, such criterion is largely dependent on the fluctuating environment in the market and consumer behavior.

With such change in the criteria the behavior of the mortgage lender is also undergoing rapid changes. Process of evolution of mortgage qualification guidelines were as follows: -

• Initially the loans were sanctioned on the basis of established income and verified assets. Proof of both was required.

• After some time proof of income was no longer needed. It was only stated income combined with verified assets. Borrowers needed only to show that they had money in the bank account.

• No income and verified assets followed next. Lender did no longer require the proof of employment for allowing a mortgage .

• Slowly but steadily the qualification guidelines continued to become looser and easier. More mortgages were produced and more risky securities were now allowed for the mortgages.

• Creation of NINA or No Income No Assets process gave further boost to the unsecured loans sanctioned by the lenders. Only the credit score was verified and mortgages were allowed.

Some other methods that were also adopted and mark the changes that took place in mortgage qualification guidelines were the ARM or adjustable rate mortgage. In such cases the borrower was required to pay the interest only for a specified grace period. Repayment of the principal commenced only at later dates. Interests that were not paid were added to the principal by the mortgage lender . Downside of the system was that the premiums enhanced to the double of the original at the end of it.

Enhancements in the proportions of subprime ARM loans granted in favor of the people with high credit scores were evident from the fact that the percentage was 61 in 2006 as against 41 in the year 2000. Brokers also received incentives from the lenders for promoting such subprime ARM loans even to people with low credit scores.

Once the recession set in and real estate market was in for the crisis the criteria for sanction of mortgage underwent dramatic changes. Mortgage underwriting standards experienced particular downslide.

In result, scope for getting easy mortgages declined considerably.

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