Michael Nickley – Rockland Trust
Fannie Mae is tightening its underwriting standards, which will impact quasi-state agency MassHousing. But a new arrangement between the two entities will allow MassHousing to make loans that are unavailable elsewhere in the state.
Fannie Mae recently agreed to allow MassHousing – and its peers in 25 other states – to offer loans for no money down because the government loan guarantor believes housing finance agencies “are an ideal source of safe, affordable, sustainable home loans that meet Fannie Mae’s goals,” said MassHousing Mortgage Insurance Program Director Peter Milewski.
MassHousing couldn’t offer the loans without its MI-Plus insurance product, which covers mortgage payments temporarily if the borrower loses his or her job, he said.
Milewski said the agreement will actually allow MassHousing to make more of Fannie Mae’s MyCommunity loans, one of two afford-able housing products the agency offers.
But the agency will be able to do fewer loans for borrowers with lower credit scores.
Just last month, Fannie Mae tightened the underwriting guidelines for its loans in response to concerns about market conditions and recent performance of its loans, Milewski explained.
He said the changes put the MyCommunity loan criteria more in line with MassHousing’s own guidelines for its other affordable loan product, MassAdvantage.
MyCommunity loans have had slightly higher delinquency rates than MassAdvantage, he said, but that may change with Fannie Mae’s new underwriting guidelines.
In the past year MassHousing’s loan production has increased, thanks to the MyCommunity loan, Milewski said.
MyCommunity loans made up 15 percent of loans made by MassHousing in fiscal year 2007, but the total jumped to 51 percent in the last fiscal year as Wall Street loan-buyers dropped out of the market. Last year, the agency made $516 million in home loans, 25 percent higher than the year prior. Milewski and others predict lending guidelines will become even more stringent.
“The greatest consternation will be among those who deviated from the plain vanilla product line that found their way to Fannie and Freddie,” Milewski said.
Fannie and Freddie invested in a few subprime products, though not the riskiest ones, he said.
‘Dramatic Impact’
But at Rockland Trust, which sells 80 percent of its loans to Fannie or Freddie, Senior Vice President for Lending Michael Nickley sounded alarmed.
“I’ve been in the business 24 years, and we’ve never seen anything at these proportions, even during the mortgage crisis of the early ’90s,” said Nickley, who sits on MassHousing’s board of directors.
He’s concerned that mortgage consumers will be charged higher interest rates to compensate for the government’s extra risk if it has to step in to alleviate problems caused by the market turmoil.
In the future, Nickley predicted, Fannie and Freddie will set down much stricter lending guidelines.
“It will return to what we saw in the 1980s – full documentation loans, and no more zero-percent down,” he said.
Yet Bill Mullin, president and chief executive officer of NE Moves Mortgage in Waltham, said much of the belt-tightening has already happened.
For example, a few months ago, Fannie and Freddie increased pricing on all their loans by a quarter-percentage point, he said. They also instituted or revived declining-market policies that forced borrowers to put down an extra 5 percent for minimum down payments in areas where house prices were deemed to be falling.
Fannie Mae, Freddie Mac and the Federal Housing Administration are virtually the only secondary mortgage purchasers left, Mullin said. If they were to go under, he added, only bank portfolios would be left to provide liquidity to the mortgage market – and they don’t have the capacity to meet the demand.
