New Lending Guidelines Could Loosen Credit Standards
Fannie Mae & Freddie Mac’s easier lending guidelines went into effect yesterday and mortgage lenders are eager to take advantage of them in an ongoing effort to offset the long-term slowdown in mortgage activity. The new guidelines resulted from an agreement in October to clarify when lenders would be penalized.
Lenders benefit greatly due to the clarification on penalizations issued for mistakes in mortgages sold to the GSE’s. The lack of clarity in the past caused lenders to tighter their own lending rules, limiting potential buyers from qualifying for home mortgages.
The director of the Housing Finance Policy Center at the Urban Insitute, Laurie Goodman, seems to be hopeful about the changes, stating they are “going to be big,” but it will take time to assess the full impact of the changes. The Urban Institute, a Washington think tank, earlier this year estimated that as many as 1.2 million additional home loans would be made annually if mortgage availability were at “normal” levels, substantially loosing the credit crunch that has been choking today’s economy. Economists have long maintained that tight credit could be holding back the housing recovery and damping economic growth. Such an influx in additional home loans would require lenders to streamline their businesses and manage their company with the latest technology and quality data.
After the financial crisis, Fannie and Freddie required banks to repurchase tens of billions of dollars in loans that the GSE’s said didn’t meet their standards. Since that time, many lenders tightened their credit standards; only allowing Lenders do seem split on their decisions to ease their credit standards for loans. Some lenders, such as Wells Fargo, and Bill Godfrey (Mason-McDuffie Mortgage’s CEO) are excited about the changes. Godfrey states the new guidelines will allow them to lend to borrowers with credit scores as low as 620 and expect to see changes in just a few weeks (such as faster turnaround times for mortgage applications to be processed). However, others such as Richard Davis from US Bancorp doesn’t expect to loosen credit standards as he isn’t convinced the new rules to remain permanent.
AppraisalPro is excited to watch the market in the next few weeks and see how things expand and grow for lenders, appraisers and appraisal management companies alike.