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Lenders streamlining financing for borrowers

If you've bought a house or refinanced recently, you know that the process can drag on interminably and that the lender wants basically your whole financial history before you get the loan.

Fannie Mae, a huge secondary lender that along with Freddie Mac sets the great bulk of mortgage standards in the United States, swears this cumbersome process is going to change - at least for A-1 type borrowers.Last month, Fannie Mae announced new software for lenders that will allow them to assess your creditworthiness without two years of tax returns, without a packet of recent paychecks and without written verification from your boss about how much you earn. Freddie Mac has a similar program.

Under Fannie Mae's system, this streamlined documentation includes "a verbal verification of employment as the only required income verification for borrowers with low-risk profiles."

Says a spokeswoman for Fannie Mae, "You simply won't have to cart in all that paper that you previously did."

What the lender will still require is your credit report - which he gets from a national credit reporting agency - your bank account records showing your assets, verbal verification of your income from your employer and your word on how much you make.

"We're trusting what the borrowers will tell us with regard to their income," a spokesman says.

But, he adds, "there is a point where the system sends a message back to the lender to talk with the borrowers about whether they can really afford the mortgage payments."

What systems like these eventually will mean is an end to the long-standing requirements that you spend no more than 28 percent of your gross income on housing and have total debt of no more than 36 percent. The computers will offer "a much more flexible way of assessing a borrower's ability to pay."

You might think that this would tempt you to inflate your income so you could qualify for a bigger loan and the house you've always wanted. And Fannie Mae admits that could happen. But, a spokesman said, "we've researched this very carefully and we know that people who have certain risk profiles . . . in a very high percentage of the time, simply do not take on financial obligations they cannot handle."

And how will the computer come up with the risk profile?

A spokesman said that will be based on "how much the borrower says they make, how they've handled their credit in the past as well as the type of credit they have . . . and how much they will put down" among other factors.

In other words, Fannie Mae isn't saying how the profile is put together, but you probably already know your own credit profile and how it would stack up against others.

Even if this system works as advertised and you have a sterling credit record, you still may find yourself lugging a lot of paper to the lender because many of them will not be willing to pay to install this new technology and others may not like the way it works.

Fannie Mae says that with this system and others already in the marketplace "as many as one in four mortgages originated next year should run through these systems."

That means, of course, that 75 percent of the mortgages processed next year will be done the old-fashioned way.