Mel Watt, director of the Federal Housing Finance Agency (FHFA), recently announced extensive plans to expand the access of homebuyers to mortgage loans, by easing lending standards. The current tight lending conditions governing the market are considered the main cause behind the hindering of the real estate industry.
During the annual conference of the Mortgage Bankers Association, Mel Watt stated that the FHFA would release new guidelines within a few weeks, in order to allow an increase in the lending process and a decrease of 3 % in payments.
FHFA regulates Fannie Mae and Freddie Mac and will help lenders sell loans easier by loosening the eligibility requirements for borrowers and, thus, helping especially those who do not have a perfect credit score.
This move is meant to help especially first-time home buyers, people who have recently switched jobs, are self-employed or who faced financial difficulties and could not keep up with some of their debts during the recession. In the United States, Fannie Mae and Freddie Mac either own or guarantee more than 60 percent of the existing mortgages.
According to Mel Watt’s declaration, Fannie and Freddie will not impose repurchases from lenders in case mortgage loans are discovered to include minor flaws if the borrowers have made their mortgage payments on time during the last 36 months.
He also added that lenders would not be forced to buy back any bad loans if flaws regarding debt loads, finances, and down payments are discovered later on in the borrowers’ reports, as long as the borrowers would have qualified, had that information been correct when they applied.
David Stevens, of the Mortgage Bankers Association CEO said that no repurchase requests would be made based on minor loan defects. The main result this strategy aims to provide is to boost the lenders’ confidence and encourage them to approve mortgage loan requests from qualifying borrowers.
The FHFA representative promised to provide lenders with subsequent clarifications for every forced buy-back loan request following inaccurate information. He admitted that the agency failed to provide clear guidelines in the past and assumed their share of responsibility for the lenders’ tendency of reviewing mortgage loan applications more cautiously, after being forced to buy-back expensive loans based on minor borrower information inaccuracies.
Watt acknowledged that the Agency’s actions caused the lenders to impose credit overlays and increase loan costs. At the same time, this phenomenon limited lending to applicants with less than perfect credit scores or less conventional income situations. According to Mel Watt, the way such issues are addressed is vital for ensuring the existence of enough liquidity in the housing market and for easing borrowers’ access to mortgage loans.
If you are planning to apply for a mortgage loan and you would like to find out how these measures will impact your approval chances, contact Maureen Martin. She will review your case, answer your questions and explain your options in detail, so that you can find the best solution for you and your home buying plans.