Thursday, October 23, 2014

Regulators Act to Loosen Tight Credit Spigot, Boost Home Sales

After years of lobbying by your Home Builders Association, the Association of Realtors, and the Mortgage Bankers Association, federal regulators have finally agreed to make changes to financial institution regulations that will boost the availability of mortgage credit for home buyers.

U.S. financial regulators this week announced separate actions that should boost the housing market and home sales by enabling more creditworthy borrowers to access home loans.

Six federal regulators finalized new rules under the Dodd-Frank Act which define the standards of a qualified residential mortgage. The final rule exempts securitizers from retaining five percent of the credit risk on qualifying home loans packaged and sold as securities. "That five percent retention, as it is known, was a key to financial institutions using much tighter underwriting standards on federally-secured loans than the standards required by the regulators themselves," Michael Dey, Executive Vice President of the Home Builders Association of Greenville, said.

By aligning the definitions of a qualified residential mortgage (QRM) and the qualified mortgage (QM), the standard lenders must follow to demonstrate they have determined a borrower’s ability to repay a mortgage loan, financial regulators have acted to alleviate confusion in the marketplace.

Since 2011, your Home Builders Association has worked independently and with a coalition of housing advocates to urge regulators to establish a QRM rule that removes downpayment requirements and other onerous underwriting criteria to keep homeownership affordable for working American families.

In an official statement, Kevin Kelly, chairman of the National Association of Home Builders, applauded regulators for taking these actions.

“The new QRM rule will encourage sound lending behaviors that support a housing recovery, attract private capital in the mortgage market, help ease tight credit conditions for borrowers, and reduce future defaults without punishing responsible borrowers and lenders,” Kelly said.

Click here to read the released from the Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac.

Click here for an interesting article in USA Today about how unreasonably tight credit standards resulted in former Federal Reserve Chairman Ben Bernanke being turned down for a mortgage. 

FHFA Director Announces Plans to Boost Credit
In another important development this week, Federal Housing Finance Agency Director Mel Watt said that FHFA will announce new details in coming weeks that will specify when financial institutions must repurchase loans from Fannie Mae and Freddie Mac that were issued based on false or inaccurate information.

“I hope our actions provide sufficient certainty to enable your companies to reassess existing credit overlays and more aggressively make responsible loans available to creditworthy borrowers,” Watt said in an October 20 speech at the annual Mortgage Bankers Association conference in Las Vegas.

To further unlock tight credit, Watt also announced plans for Fannie Mae and Freddie Mac to lower their down payment requirements from five percent to as low as three percent.

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