Mortgage Credit Remains Tight in Agency Market

According to Michael Stegman, Counselor to the Secretary for Housing Policy at the White House, the housing market has been improving but credit remains tight on loans bought by government sponsored enterprises (“GSEs”) Fannie Mae and Freddie Mac. Speaking at an industry event last Wednesday, April 6th, Dr. Stegman told audiences that “we are still seeing an average 750 FICO score on GSE loans,” National Mortgage News reports.

Other changes the industry has been grappling with include servicing rules that have raised the cost of dealing with defaults and failed mortgages. According to Keith Bickel, Senior Vice President at Bank of America, lenders are still adjusting to recent and forthcoming regulatory changes, the pace and scope of which have contributed to “what we see as a tightening of credit.”

Furthermore, Federal Housing Administration (“FHA”) lenders are concerned about liability for minor loan defects or errors. While the FHA has attempted to reassure lenders they won’t be penalized for minor defects on loans, the industry does not appear to be reassured by these efforts. According to Brian Chappelle, a co-founder of Potomac Partners, by raising the issue of loan certifications and the Department of Justice's enforcement actions against FHA lenders, "it probably has put more fear into smaller lenders… While FHA was trying to allay industry fears, I think it was a net negative based on the questions I get from lenders who are more worried about the certifications. Any changes in this environment worry lenders."

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