Mortgage Guidelines Loosening

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The mortgage product regulation pendulum has swayed side to side in recent years.  The sway has been primarily influenced by tougher and tighter restrictions with spotted swings toward easement.  Almost all those in the real estate industry have uttered one phrase in particular over the years.  That “the pendulum will swing back and land somewhere in the middle.”

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Well, we may start witnessing some easement coming from Fannie and Freddie if the rumor mill is spinning truthfully.  Those way up top the mortgage ladder rubbed elbows at the MBA’s annual convention in Las Vegas last week.  FHFA Director Mel Watt, Fannie Mae CEO Timothy Mayopoulus, and US Dept. of HUD Director Julian Castro all spoke at the annual event.  Their main focus was to discuss new initiatives in the works.

Cleaning Up Repurchase Requirements – HUGE Impact

One of the leading sources of frustration and challenge in today’s mortgage world is on the investor repurchase end.  Specifically, the issue lies in the “reps and warrants” or repurchase agreements originating home loan lenders have in place with end investors.  Specifically, there is quite a bit of uncertainty within the actual terms of these types of agreements.  Uncertainty about origination lender’s mortgage loan “buy backs” on loans has a ripple effect.  This results in lenders and underwriters being even more cautious and over-analyzing new loan applications.  Ultimately, it makes getting a home mortgage harder for many Americans.

“Reps and warrants” have also been too severe.  In fact, so severe that lenders oftentimes are frightened to lend in certain cases and with certain loan products to avoid harmful consequences.  I have personally seen loan products roll out from the investor level only to see the originating community (lenders that actually originate mortgage loans) refuse to introduce the products.   HUD/FHA’s Back to Work program is a prime example.  Initially, HUD issued some very vague requirements.  As a result, it took several months for lenders to feel comfortable originating FHA Back to Work loans.

Lower Down Payment Options were Almost Inevitably

In the fall of 2014 Fannie Mae scaled back from it’s 3% down program, requiring 5% as a minimum down payment.  A u-turn was predictably in the future for Fannie Mae’s minimum down payment requirement (and possibly other Fannie changes).  Ultimately, all of the talk about re-introducing a 3% down Conventional loan product evolved into our current reality.

Why Ease Mortgage Requirements Now?

To summarize, housing market has improved; it’s hard to argue that fact.  However, it is not continually improving at the pace many regulators want.  One of the things that the powers that be believe is at the heart of a slower than preferred housing market is a lending industry that is wound far too tightly with too few being able to gain access to it.  To end where we started – this could be the beginning of the eventual swing to a healthy middle ground we have all been predicting … or better yet … hoping for.

By Jeremy House

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