The hallowed choir of federal officials who oversee their nation’s mortgage market seem to have changed their tune in recent weeks – but so far mortgage bankers aren’t ready to hit the dance floor.
After months of mutterings, several announcements by policymakers this month have heralded a sea change toward loosening underwriting standards in an effort to jumpstart the sluggish mortgage market.
There now appears to be a burgeoning recognition at the federal level that tight underwriting standards are holding back the market. Fear of buybacks, in particular, has held lenders back from making otherwise sound loans.
“We know that that this issue has contributed to lenders imposing credit overlays that drive up the cost of lending and also restrict lending to borrowers with less than perfect credit scores or with less conventional financial institutions,” Federal Housing Finance Authority chief Mel Watt admitted in a speech to the Mortgage Bankers Association’s annual convention earlier this month.
Watt pledged that the GSEs would introduce greater clarity into their “credit box” standards that should help reduce the fear of buybacks. He also said that Fannie and Freddie are planning to once again begin accepting loans with as little as 3 percent down payments. That would mean borrowers who were formerly able to obtain only higher-cost FHA loans would once again have access to conventional lending.
A QRM Resolution
In addition, the final rules defining a “qualified residential mortgage,” (QRM) part of the Dodd-Frank financial reform law, were also issued this month and the result appears to be an unequivocal victory for the mortgage lending industry.
Loans that meet the QRM standard are exempt from the stringent “skin in the game” capital requirements called for by Dodd-Frank, and federal regulators were initially inclined to keep that definition very narrow. But as the fitful housing recovery has progressed, the industry’s push to keep the QRM definition in line with the Consumer Financial Protection Bureau’s (CFPB) separate “qualified mortgage” rules has won the day.
But while the Fed’s decision on QRM was welcome, and Watt’s words may have been music to lender’s ears, caution still reigns.
“It signifies a change in tone and in attitude, but in reality we haven’t seen a kinder, gentler reaction from the people who actually push the files back … we’re making the same decisions we made a week ago,” said Brian Koss, managing partner of the Danvers-based Mortgage Network. “We’re just feeling better that we may see some changes.”
And while the broader QRM definition should help bolster banks’ ability to lend, regulators’ decision to follow the CFPB’s lead also bolsters the influence of that agency in Washington. With several further rounds of regulation on laws such as the Truth In Lending Act headed down the pike from the CFPB, lenders find themselves more wary than enthused about that prospect.
“There’s some really ugly stuff that’s coming down the road. QM came out the way everybody hoped it would, [and Fannie’s shift to] 3 percent from 5 percent is a positive, but I don’t know how much immediate impact it’ll have. Certainly in the Boston market it’ll have less impact than in some others,” said Amy Tierce, vice president of Wintrust Mortgage in Needham. Other aspects of the underwriting process, like credit scores requirement, remain tight, she pointed out: “It’s a mixed bag.”
That stop-start shifting between hope and caution has also plagued the rates themselves. Shifts in the global economy have given homegrown lenders a bigger boost, with a falling unemployment and stronger economic growth at home combining with renewed recession fears in Europe to send rates plummeting to lows not seen since 2013.
But the Fed’s announcement last Thursday that it will soon end its bond-buying program has reversed that trend, and seems set to quell lenders’ hopes of a renewed boomlet in refis before the end of the year.
Email: csullivan@thewarrengroup.com
