Just when you thought that millennials with student debt couldn’t be in a deeper financial hole, Fannie Mae shows up with more shovels…
Recently, Fannie Mae announced new policies that will make it much easier for borrowers currently ineligible for mortgage loans (due to sizable student loan burdens) to become further indebted homeowners as well.
They are doing this by allowing ineligible borrowers to now “exclude” certain debts (such as student loans, auto loans, and/or credit cards) from their loan application debt-to-income ratios if they are being paid by someone else.
So for example, if your parents are making your student loan or car loan payments, you can now leave these off your loan application and are now much more likely to be eligible for a mortgage with Fannie Mae.
Of course, the issue of circumstances changing in the future and that person no longer being able to pay for you seem to have gone overlooked so far…
These policy changes amount to little more than Fannie Mae finding ways to grow its loan portfolio at the potentially dangerous expense of over-indebting its customer base.
The company already has a program in place that allows borrowers to pay down their student loans with money acquired by refinancing their current mortgages. Unfortunately, many of these borrowers are now unable to get that current mortgage in the first place.
Further, in the wake of trying to turn more student borrowers into homeowners as fast as possible, the underlying problems of education costs and post-graduation income continue to worsen. And the fallacy of thinking every college graduate should be taking the home-buying plunge as soon as possible is equally problematic in the first place.
In addition, Fannie Mae is a government-sponsored entity, meaning that the mortgage loans it makes are ultimately backed by US taxpayers. So now taxpayers are on the hook not only for a significant amount of the student loans already out there but potentially for the new mortgages being taken out by these borrowers as well.
With an already indebted generation of student borrowers about to be even more indebted with mortgage loans, at a time when real incomes are declining every year, and all of it ultimately backed by the US taxpayers, it’s difficult to see how this ends well in the long-run.