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U-turn on GSE mortgage policy

  • Obtaining a mortgage may be about to get a lot easier as FHFA chief Mel Watt - in his first public speech since taking over as regulator of Fannie Mae (FNMA) and Freddie Mac (FMCC) in January - says the mortgage giants should focus on making credit more readily available to homeowners.
  • The call is a U-turn from the policy of previous FHFA boss Ed DeMarco. "I don't think it's FHFA's role to contract the footprint of Fannie and Freddie," says Watt, adding that winding down the companies without proof private investors are willing to fill the gap "would be irresponsible."
Comments (12)
  • taxman100
    , contributor
    Comments (301) | Send Message
     
    Would you loan money to the majority of homeowners for 30 years at the current interest rates? The risk of job loss, medical issues, lack of fiscal discipline, etc. are all supposed to considered when setting interest rates by lenders.

     

    That is why lenders do the smart thing - sell over 90% of their notes to Fannie or Freddie as soon as they close the mortgage, and let Uncle Sucker be on the hook for nonpayment.

     

    The entire risk profile for lenders is no longer remotely related to the real world.
    14 May, 08:45 AM Reply Like
  • buyandhold???
    , contributor
    Comments (907) | Send Message
     
    Yes but lenders are borderline ridiculous these days. I own a condo here in south beach and my neighbor wanted to put his unit up for sale and I told him I'd buy it from him no dealing with realtors, waiting, or anything. I got the condo for $1200/ft when recent comps in the building went up over $1900/ft so I got it for a great deal. I am a little under on most of my positions which are 2016 calls on some tech stocks so I didn't want to cash out any equities to pay for the property so I had to to talk to 3 different banks to try and get a mortgage. Chase didn't do condos,citi wanted 50% down, and finally I got a mortgage for $900,000 w/ half down from a private lender for 4.5% which was a little high but it was fine with me bc i underpaid for the unit. I filled out no less than 500 pages of paperwork, they wanted 2 years tax returns, current year p and l for each of my businesses and tons and tons of nonsense when I sent them a bank account w/7 figures and a brokerage account with 7 figures as well. I have the assets to cover the loan, just wish to use easy money and the process was just mind-boggling to get the deal done, way harder than it should have been for a borrower with my assets,credit, and business cash flow. I can't imagine trying to get a mortgage making $50,000/year it must be a nightmare

     

    banks literally want no risk these days.....none...its ridiculous
    14 May, 08:59 AM Reply Like
  • Lakeaffect
    , contributor
    Comments (1049) | Send Message
     
    Buyand ...... Unless you had already set up a line of credit with a bank or had established a long standing business relationship with a banker, what you went through to finance your investment in a condo does not sound unreasonable to me. As you stated, you are taking advantage of cheap money. You appear to have expected they hand over the funds no questions asked? A responsible lender (aside from the deep pockets Government) is going to take a close look at the credit worthiness of their potential debtor. Fortunately for you and all the rest of us, the Government has not widened it's mortgage activities to include properties for investment and speculation -- Yet.

     

    Unfortunately, we have tax payer money whoring up the financing markets which push normally prudent lenders to take unnecessary risks or go out of business and cede the entire market to government and political whim. Those lenders do not realize that as long as the Government is their competitor, their choice is to get out of the business now, or wait until the SHTF and then get forced out with empty pockets (Unless of course, you're TBTF).

     

    At some point, the mortgage market is going to revert to the 2006 paradigm of "if you can fog the mirror, you get the loan" and it will be driven by Government funding which is desperate to keep the housing market from stalling. There are still underwater houses out there, a lot of them in "suspended foreclosure". Prices need to go up more to alleviate the situation. Unfortunately, the more the prices go up, then more and more people get priced out of the market and demand diminishes. The only way to keep that from happening is to make mortgages as cheap and easy to get as possible.

     

    There is no room in this market for prudent lenders, but then they were elbowed aside years ago, weren't they? That's kind of the point of Watt's comment about private investors inability to step in and fill the role.

     

    14 May, 11:57 AM Reply Like
  • evan.prospect
    , contributor
    Comments (694) | Send Message
     
    Housing prices just need to stay flat for a few years rather than continuing to go up. I bought my house in late 2011 and it's up about 25% nominally since then which is crazy (sure, good timing by me but still).

     

    And where in the Constitution does it specifically say the Federal Government can stick its nose into residential housing finance? If it doesn't enumerate those powers in the Constitution, those rights are delegated to the States!
    14 May, 01:34 PM Reply Like
  • ReligiousWacko
    , contributor
    Comments (1211) | Send Message
     
    The paperwork is not about risk. It's about filing stupid paperwork so blame can be passed along. I bought a 450k investment property and was looking for 300k loan. I easily have 7 figures in brokerage account, subject property was easily cash flow positive, and have other cash flow positive properties. At the time, I was contracting and making pretty solid income. Chase refused to recognize the 1099 income since I had only been doing it for a few months ( even though I had been W-2 employee of company for over 3 years and been in same industry for over 10 ). Even though they didn't recognize the income, they wanted to verify that I was actually working .. yes, you read that right.. They wanted to verify income they would't count for loan. If that wasn't stupid enough, they wanted me to explain why I was depositing 18-20k per month into my Chase accounts ( AND I already had way more than enough for down payment in Chase accounts for months).

     

    I hate Chase.
    15 May, 02:36 AM Reply Like
  • DeepValueLover
    , contributor
    Comments (8682) | Send Message
     
    Pay the shareholder's the dividends they are legally entitled to.
    14 May, 09:05 AM Reply Like
  • minecanary
    , contributor
    Comments (485) | Send Message
     
    Since the no verification products are working so well for school loans and autos, why not roll them out to housing? We can save on the Section 8 costs.
    14 May, 09:12 AM Reply Like
  • ThetaDecay
    , contributor
    Comments (107) | Send Message
     
    You know what I think would be irresponsible, Mel? Relaxing your loan standards to the point of not requiring documentation (to say nothing of the inflated debt-to-income and loan-to-value ratios), guaranteeing all principal and interest on the mortgages you securitize for a mere 15 basis points, leveraging your book to the hilt by holding only .45% of the mortgage amount you've guaranteed, indiscriminately devouring market share to the point that you account for nearly half of all non-prime mortgage originations, pouring over $1 trillion into the purchase non-prime loans in the span of two years (artificially inflating the bloated market even further), and holding all those non-prime loans on your balance sheet with a capital ratio of 2.5%.

     

    I think that would be very irresponsible.
    14 May, 09:14 AM Reply Like
  • divStrong
    , contributor
    Comments (154) | Send Message
     
    No one is advocating for the return of stated income home loans, and if you recall it was the PRIVATE sector - namely Countrywide & IndyMac - that were issuing these unverified loans, then fraudulently selling them to the GSEs. At no point was the FNMA/FMCC mandate to loosen lending standards to that level, but greed & opportunity proved too devious.

     

    Hindsight is 20/20, and many of those 'non-prime' loans you reference were stamped as AAA rated MBSs by Moodys & the like, making them acceptable for institutional investment - have you ranted about the ratings agencies or shady brokers who sold that crap lately as well?

     

    To buyandhold's point, we are currently in a situation where banks have over corrected their risk tolerance for home mortgages, and high net worth individuals are finding it difficult to quality for loans even with significant down payments of 50% or more. In order to invest in our neighborhoods again, remove some of the blight, and get the middle class focused on creating wealth through home ownership again (as has been the case for nearly a century) mortgages need to be made more accessible to those further down the economic ladder.
    14 May, 01:10 PM Reply Like
  • philipmax
    , contributor
    Comments (265) | Send Message
     
    Here we go again!
    14 May, 09:23 AM Reply Like
  • bttran1974
    , contributor
    Comments (2) | Send Message
     
    buyandhold??? when you make investment decisions, do you not try to gather as much information as possible before you decide to pull the trigger or not? The same goes, or at least should have been prior to 2008, with all lenders. I work for a lender and I for one appreciate the added due diligence. Is it overkill? Possibly. Is it necessary? Absolutely. And just because lenders are asking for more information nowadays doesn't mean the loans they're giving are risk-free. Small business owners have only gotten more creative nowadays after 2008 in order to minimize their tax liability. If anything, it's made it even more difficult to underwrite SBOs than it used to as a result. As for the 50% down on investment properties, that's a direct response to the Wild West mentality prior to 2008 of RE investors putting as little money down and eventually having it blow up in everyone's faces with folks walking away from these properties with little 'skin in the game.'
    14 May, 11:33 AM Reply Like
  • kata
    , contributor
    Comments (602) | Send Message
     
    Sounds like the ghost of Barney Frank is shaking his chains ...
    15 May, 12:08 AM Reply Like
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