Here we go again, they are trying really hard to bailout the banks, well the fed now since they hold most of those bad loans too, and turn those bad assets into good to wit: Mortgage giants Fannie Mae and Freddie Mac , their regulator and lenders are close to an agreement that could greatly expand mortgage credit while helping lenders protect themselves from charges of making bad loans, according to people familiar with the matter. Fannie Mae and Freddie Mac have recouped tens of billions of dollars in penalties from lenders in recent years over claims that the lenders made underwriting mistakes on loans they sold to the mortgage giants. Lenders have blamed those penalties for tight credit conditions and for prompting them to make loans only to borrowers with near-pristine credit. If the agreement is completed, lenders may be more willing to lend to borrowers with lower credit scores and smaller down payments. Fannie and Freddie are also considering new programs that would make it easier for lenders to offer mortgages with down payments of as little as 3% for some borrowers, according to people familiar the matter, marking a reversal for the loan giants. The moves, which could be announced as soon as next week, could help pave the way for greater loan access for millions of Americans who have less-than-pristine credit or can’t afford to put a large amount of money down. At the same time, they could provide kindling for critics who worry that the companies and regulators could repeat some of the mistakes that lead to the housing boom and bust. The agreement and low-down-payment programs would be the latest effort by federal regulators to ease mortgage standards, which have remained abnormally tight since the financial crisis. In previous years, the Federal Housing Finance Agency, which regulates Fannie and Freddie, had tried to shrink their outsize role in the mortgage market. However, under new director Mel Watt, who took office in January, the agency has turned to expanding mortgage access in part to ensure tight credit doesn’t stifle the housing recovery. Fannie and Freddie don’t make loans, but buy them from lenders, package them into securities and then give guarantees to make investors whole if the loans default. When lenders sell loans to the companies, they make their own representations and warranties that the loans meet the companies’ standards. After the housing crisis, Fannie and Freddie required lenders to buy back tens of billions of dollars of delinquent mortgages that they said ran afoul of their standards. In response, lenders have said that they would only make loans that were much more conservative than what Fannie and Freddie require. Over the past few years, FHFA has made several attempts to ease lenders’ concerns. Beginning in 2013, the agency said that lenders wouldn’t have to buy back most loans where the borrower didn’t miss any payments for three years. This May, the FHFA said that borrowers could miss two nonconsecutive payments within three years. In both cases, the FHFA exempted some mistakes such as fraud, and without clear definitions of what mistakes met that threshold, lenders said they remained wary to expand mortgage access. The new agreement would clarify what mistakes should constitute fraud, giving greater confidence to lenders that they won’t be penalized many years after a loan is made. To be sure, lenders and government regulators must still agree on what to do if they disagree on some problems, which could involve introducing a third-party arbiter to resolve disputes. Separately, Fannie Mae, Freddie Mac and the FHFA are considering new programs that would allow them to guarantee some mortgages with down payments of as little as 3%. The program could be limited to certain kinds of loans, such as mortgages to first-time home buyers, or be broader. The move would be a big reversal for the lenders. Fannie Mae stopped accepting loans with 3% down payments last year, except in certain circumstances, while Freddie stopped guaranteeing such mortgages several years ago. Loans backed by Fannie and Freddie with down payments of less than 20% typically require mortgage insurance. Both the agreement and the new program, which could be limited to certain types of borrowers, could be announced as soon as next week. The efforts come as regulators and White House officials struggle to find ways to expand mortgage access, which despite a sharp rise in home prices, has remained limited. According to mortgage-origination software company Ellie Mae, the average FICO credit score for closed loans in August was 727, on a scale of 300 to 850, down only slightly from 2013. According to real-estate-data company CoreLogic, in July about 12% of home purchase loans were made with down payments of less than 5%, compared with nearly 40% toward the end of 2009. Regulators and lenders have tried to walk the fine line between expanding mortgage access and moving too far back to the loose credit that precipitated the crisis. At one of his first public speeches in May, Mr. Watt said that Fannie and Freddie should focus on making credit more available, rather than pull back from the mortgage market. It isn’t yet clear how much of an impact the lowdown payment programs would have on mortgage credit availability. Borrowers who want to make a low down payment can often access loans insured by the Federal Housing Administration, which guarantees loans with down payments of as little as 3.5%. But the cost of FHA insurance has risen sharply over the last few years.
Posted on: Fri, 17 Oct 2014 16:19:25 +0000
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