Fannie boosts DTI ratio in new Desktop Underwriter update

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WASHINGTON – Fannie Mae is increasing the maximum debt-to-income ratio it will allow on purchased loans to 50% from 45% on single-family loans when it rolls out its latest version of Desktop Underwriter on July 29.

The move comes six years after Freddie Mac began buying mortgages with debt-to-income ratios of 50% and was quickly hailed by industry representatives as a way to expand access to credit.

"Our estimate is that 95,000 new loans may now be approved annually,” the Urban Institute wrote in a paper released Wednesday. “We expect the DU update will result in more loans with DTI ratios between 45% and 50%.”

Pete Mills, the Mortgage Bankers Association’s senior vice president of residential policy, said the group welcomes the government-sponsored enterprises’ looking to make sure lenders are confident lending to the full extent of the credit box.”

Fannie detailed the change in a July 11 paper, but it has received little attention until now.

The Urban Institute estimates that Fannie will buy 85,000 more loans as a result of the change, while Freddie will buy 15,000 more. (Some Freddie loans go through Fannie’s automated underwriting system.) But the trade group expects a small portion of that increase, around 5,000 loans, will be mortgages that would have been made through the Federal Housing Administration.

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Underwriting GSEs Mortgage technology Fannie Mae Freddie Mac