New Fannie, Freddie Rules Should Speed Housing Recovery
Dec 10th, 2014 @ 8:06 PM by Amber Nelson
It should be easier to get a home mortgage loan going forward now that mortgage guarantors Fannie Mae and Freddie Mac have clarified their rules for lenders.
After the mortgage meltdown several years ago, Congress passed the Dodd-Frank Act that included ambiguously worded regulations that made mortgage lenders pull back on loan originations. Specifically, that law made it difficult for lenders to know which loans would count as mortgages qualified to get government backing and when they would be in danger of having to buy back soured loans.
Within the last few months Fannie and Freddie have finally clearly defined what the rules are and that should make all the difference in encouraging lenders to open their credit spigots again. Qualified mortgages are those that have no risky features like interest-only payments or terms longer than 30 years.
And most recently the government-controlled agencies have defined when banks must buy back defaulted loans. Up until now, Fannie and Freddie could require lenders to repurchase loans they made if the mortgages went into default soon after they were made or if there were any paperwork mistakes or borrower fraud. The new rules state that lenders will not be forced to buy back any loans that have no missed payments during the first 36 months. And up to two missed payments in the first three years will be allowed before foreclosure proceedings are begun.
Having this point cleared up should give lenders much more confidence in making home loans. The buyback issue has been “the number one hindrance to mortgage lending lately,” said National Association of Realtors Lawrence Yun. “If it disappears, it would be a big boost to mortgage lending.”
Fannie and Freddie have also decided to back loans made with as little as three percent down payments, although borrowers must pay mortgage insurance premiums for the entire life of the loan.
“Our goal is to help additional qualified borrowers gain access to mortgages,” said Andrew Bon Salle, Fannie Mae executive vice president for single-family underwriting, pricing, and capital markets in a statement. “This option alone will not solve all the challenges around access to credit. Our new 97 percent LTV offering is simply one way we are working to remove barriers for creditworthy borrowers to get a mortgage.”
Altogether these changes should help lenders move forward in opening up mortgage credit to more borrowers.
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to Loan.com and Mortgage101.com.