Questions? Feedback? powered by Olark live chat software

Chrisman's Corner: Lending Guideline Changes May Be Slower than We Think

Plenty of JMAC’s brokers and their borrowers have seen in the press that the government wants to loosen home mortgage standards to increase the number of people who can qualify to purchase a home. And plenty of potential borrowers are wondering if it will impact them.

 Many people in the industry believe that government officials pushing for the changes and their supporters either have very short memories or are more concerned with scoring political points than the economic impact on the mortgage and housing industries and the overall economy of their proposals. Remember that politicians are mostly driven by political reasons whereas private companies (such as JMAC) are driven by minimizing risk & maximizing return.

 At this point the government controls the FHFA, which in turn controls Fannie Mae and Freddie Mac. May of the guidelines used by the industry were created by Freddie and Fannie. But companies that are owned by individuals, employees, or stockholders are not forced to adhere to government guidelines for a particular product. In fact, if a particular guideline is deemed too risky by a lender such as JMAC they won’t offer it, or they will put “overlays” based on their determination of the risk. In fact many lenders have seen increased loan repurchase demands from Fannie & Freddie over the past several years, which in turn has resulted in lenders tightening their underwriting guidelines to be stricter than those required by Fannie and Freddie. These repurchase demands can amount to hundreds of thousands of dollars – and no lender wants that.

 The government would like lenders to restrict the use of overlays, loosen the repurchase requirements by Fannie and Freddie, and to increase the maximum loan-to-value of certain products. But most lenders may be slow to change their guidelines based on recent dealings with Fannie & Freddie, and in watching certain types of loans have higher delinquencies than others. So although the government and press may be focused on changing guidelines to increase homeownership, lenders such as JMAC may hesitate.