Loan Rules Hit "Trailing Spouses"

Worldwide ERC estimates that about 800,000 households in the United States move in a typical year because of job transfers. In the most recent year in which the IRS has reported statistics -- for 2006 -- more than 1 million taxpayers filed for job transfer-related deductions.

Fannie Mae, a congressionally chartered investment firm, is now being run under a conservatorship arrangement by the federal government, as is its rival investor, Freddie Mac. The two corporations account for an estimated 70 percent-plus of all new mortgage volume.

However, Freddie Mac still counts trailing spouse or co-borrower income for loan applications, but under strict guidelines:

-- The amount of the trailing co-borrower income cannot exceed 33 percent of the total qualifying income for the mortgage application.

-- That income cannot be from self-employment.

-- The trailing spouse must have been continuously employed in the same occupation for at least two years preceding the relocation.

-- And the co-borrower must provide a statement of intent to find employment in the new location. The loan officer or lender must also analyze that local employment market and verify that there are adequate opportunities and earnings potential for the co-borrower.

As part of its June 8 tightening of underwriting rules, Fannie Mae also announced that it plans to discount the values of all borrowers' stock, bond, mutual fund and retirement fund holdings that are claimed toward the applicants' financial reserves needed to qualify for a mortgage. While Fannie previously counted 100 percent of the claimed or documented value of stocks, bonds and mutual funds toward reserves, under its revised policy it will discount them by 30 percent.

For retirement accounts, it will only count 60 percent of the value toward reserves. To illustrate: If your mutual funds and stocks are worth $100,000 according to your investment manager or broker, Fannie will only credit $70,000 toward reserves -- a 30 percent "haircut." If your retirement account is worth $500,000, Fannie will only give you credit toward reserves of $300,000.

Faith of Fannie Mae said the changes are necessitated by "market volatility," which "has caused recent major losses on investments and retirement accounts."