Oct 13, 2017

WASHINGTON, DC – Fannie Mae announced new policies that will help more borrowers with student debt qualify for a home loan. These innovations address challenges and obstacles to homeownership due to a significant increase in student loan debt over the past decade and provide access to credit for qualified borrowers. The new solutions give homeowners the opportunity to pay down student debt with a mortgage refinance, allow borrowers to exclude non-mortgage debt paid by others as part of the loan application process, and make it more likely for borrowers with student debt to qualify for a mortgage loan by allowing lenders to accept student debt payments included on credit reports.

“We understand the significant role that a monthly student loan payment plays in a potential home buyer’s consideration to take on a mortgage, and we want to be a part of the solution,” said Jonathan Lawless, Vice President of Customer Solutions, Fannie Mae. “These new policies provide three flexible payment solutions to future and current homeowners and, in turn, allow lenders to serve more borrowers.”

Student debt in the U.S. has spiraled out-of-control over the last decade to $1.4 trillion, effectively locking-out millions of potential homebuyers from the market. These new guidelines address specific roadblocks that these borrowers face, providing a jump-start to a whole generation of homebuyers.

Fannie Mae’s new solutions include:

  • Student loan cash-out refinance: Offers homeowners the flexibility to pay off high interest rate student debt while potentially refinancing to a lower mortgage interest rate.
  • Debt paid by others: Widens borrower eligibility to qualify for a home loan by excluding from the borrower’s debt-to-income ratio non-mortgage debt, such as credit cards, auto loans, and student loans, paid by someone else.
  • Student debt payment calculation: Makes it more likely for borrowers with student debt to qualify for a loan by allowing lenders to accept student loan payment information on credit reports.

Fannie Mae created the new programs to help counter the stifling effect student debt was having on the housing market, Lawless said. Many potential borrowers have been unable to get past the debt-to-income threshold to buy their first house, while parents who helped pay for their children’s education have also been hit.

“We arrived at these product ideas after seeing the size of student loan debt, which is $1.4 trillion. But there’s another number to pay attention to — $8 trillion in home equity,” Lawless said. “There is enough housing equity in California alone to pay off the student debt of the entire nation. We wanted to find a way to unlock that equity.” The cash-out refinance allows homeowners to pay off not only their own student debt, but any debt they took on for their kids' education. “By tapping into their equity, parents could directly free up the next generation of homeowners,” Lawless said.