Category Archives: Buyers

Fannie Mae, Freddie Mac Ease Lending Standards

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Fannie Mae, Freddie Mac reach deal to ease mortgage lending

By E. Scott Reckard, Tim Logan , Los Angeles Times

Mortgage financing giants Fannie Mae and Freddie Mac, together with their federal regulator, have drawn up rules aimed at loosening constricted lending standards to make mortgages more affordable and easier to get for those with less than stellar credit.

The move comes in response to criticism that banks have clamped down too much on loan criteria to avoid legal liability for any mortgages they sell to Fannie or Freddie that may go bad in the future.

The two companies, seized by the government in 2008 as they teetered on financial collapse during the Great Recession, turned on lenders over mortgages that fell apart as the market melted down in 2007. Many loans were poorly underwritten, with some lenders accepting simply a borrower’s statement on income rather than verifying it.

Bankers have been forced to pay tens of billions of dollars in recent years to settle assertions that the bad loans violated representations and warranties made when the loans were sold and demanding that the banks repurchase them.

In reaction, lenders have drawn their purse strings tighter than Fannie and Freddie require when evaluating loan applications, saying the threat of repurchase demands makes the risks worth taking only for borrowers with excellent credit profiles.

The clearer guidelines are intended to convince lenders that they won’t regret lending to higher-risk but still worthy borrowers, according to people briefed on the matter, who spoke on condition of anonymity because the program won’t be announced formally until next week.

Under the new rules, the financing firms would delineate what constitutes cause for requiring banks to repurchase loans. They also would reduce the minimum down payment to 3% from 5% generally needed to qualify for selling the loans to Fannie and Freddie.

The changes resulted from discussions that trade group Mortgage Bankers Assn. arranged between lenders and Fannie, Freddie and their regulator, the Federal Housing Finance Agency.

Fannie and Freddie are the biggest pillars of support for U.S. housing, guaranteeing 59% of all mortgages being written. They are regulated by the Federal Housing Finance Agency, which has tried to address the lenders’ complaints previously with changes that produced little effect on tight standards.

An FHFA rule that took effect in January 2013 said loans on which the borrower paid as agreed for the first 36 months would not be candidates for repurchasing unless they were clearly fraudulent or seriously overstated the borrowers’ qualifications.

Earlier this year, the FHFA further loosened its rules so that loans would be deemed solid even if a borrower fell delinquent for 30 days on two separate occasions during the first 36 months.

Fannie and Freddie guidelines set a minimum credit score at 620, once widely regarded as the cutoff between prime and subprime borrowers. But this year the average loan guaranteed by Freddie has a 742 credit score, high in the “excellent” credit range and down only a little from 756 in 2012.

The reduction in the minimum down payment for most Fannie and Freddie loans to 3% brings the requirement in sync with the Federal Housing Administration, which insures loans made to first-time and lower-income borrowers.

A few Fannie and Freddie programs already offer a 3% down payment. The giant mortgage companies generally require borrowers with down payments of less than 20% to buy private mortgage insurance to offset the greater risk, and will do so under the new guidelines.

Fannie and Freddie buy mortgages and issue debt securities backed by payments on the loans. The companies guarantee to pay investors themselves if the borrowers go delinquent.

Tight lending standards have held back home purchases by average buyers in recent years, slowing the nation’s economic recovery.

The Urban Institute estimates that 1.2 million more home loans would have been made in 2012 had the lending standards common in 2001 — well before safeguards were tossed out the window during the housing bubble — been in place.

Investors paying all cash for foreclosed properties buoyed housing markets for several years, but a decline in distressed sales and rising home prices have reduced those once common transactions.

The California Assn. of Realtors last week projected that home sales in the state this year would fall nearly 65,000 short of their initial forecast, in part because of tighter mortgage lending.

At No. 1 mortgage lender Wells Fargo & Co., Chief Financial Officer John R. Shrewsberry said this week that the standoff over mortgage repurchases has created two mortgage markets, only one of which — for affluent borrowers with well-established credit — serves borrowers well.

The low- to middle-income and minority borrowers most often thwarted by the tougher lending standards are also the same people who were hit hardest in the mortgage crisis, said Paul Leonard, California director of the Center for Responsible Lending.

“Those folks took it on the chin the hardest and have been least able to get up off of the mat,” Leonard said. “That’s a serious challenge in terms of building wealth.”

“There’s a perception of a lot of risk in lending to these communities,” he said. “Understandably, after the crisis the pendulum of mortgage credit standards swung to a far extreme. It’s now working its way back to a more moderate position.”

David Stevens, president of the Mortgage Bankers Assn. and a former FHA commissioner in the Obama administration, said his group has been in talks with the White House about ways to devise clearer guidelines.

“You’ve got to give confidence to lending institutions that they’re not going to be held accountable for minor mistakes,” Stevens said. “All the incentives [for lenders] right now are not aligned around prudent judgments. They’re aligned around complete risk avoidance for fear of retribution.”

Article courtesy of the Los Angeles Times

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Home Sales Post Gains

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September Purchases in Southland rise 1.2% as property values grow at slower pace.

By Tim Logan October 14, 2014 Los Angeles Times Business Section

Southern California’s housing market is starting to pick up the pace.

Home sales in the six-county Southland grew for the first time in a year in September as prices moderated from last year’s torrid gains, according to figures out Monday.

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The data are the latest sign of a housing market that’s reaching equilibrium after years of big swings, economists say.

Higher prices have pushed many investors and cash buyers out of the market, while still-low interest rates and an improving economy are luring more so-called regular buyers. And while prices aren’t climbing at the 20%-plus pace of last year, they’re still rising enough to keep sellers interested in selling.

quote_1“It seems like we’re heading toward more of a balance,” said Mark Gonzales, an agent with Redfin in West Los Angeles. “As long as we can get pricing right in line with people’s expectations, we’re in balance.”

That balance helped drive the number of sales across the region up 1.2% compared with a year ago, according to San Diego-based CoreLogic DataQuick. It’s a modest bump, but the first growth of any kind since September 2013, and a big swing from the 18% slide CoreLogic recorded in August.

Sales growth was strongest in Los Angeles and Orange counties, instead of in less-expensive markets farther east. And prices actually fell a bit, with the region’s median slipping to $413,000 from its post-crash high of $420,000 in August. Compared with a year ago, the median price is up 8.1%, and September was the first month in two years that none of the six counties CoreLogic tracks notched a double-digit annual gain.

The market right now has something to offer both buyers and sellers, said CoreLogic analyst Andrew LePage.

“There are still upward forces on home prices: Jobs are being created and families started at a time when the supply of homes for sale … remains relatively low,” he said. “Today’s home shoppers are more likely to find a less-crowded market with fewer intense multiple-offer situations and more serious, realistic buyers.”

It’s unclear, though, how long this equilibrium will last.

The California Assn. of Realtors last week forecast that price gains will keep slowing in 2015, and that sales will increase — after falling in 2014 — as buyers have a better chance to catch up to the new higher price points. But in a market in which many buyers struggle to afford a house, the prospect of higher interest rates is a constant threat, said the trade group’s chief executive, Joel Singer.

“Any increase is going to have a substantial effect on the number of sales,” Singer told a roomful of agents last week at the association’s annual convention in Anaheim.

Right now, though, rates are as low as they’ve been all year. The job market is improving. Even gasoline prices are down, which is putting would-be buyers in a better mood, said Syd Leibovitch, president of Rodeo Realty. His firm, one of the largest brokerages in Southern California, is starting to see both prices and sales pick up again for deals that will close later this fall.

“It was really unexpected,” he said. “August was a slower month. It seemed like homes were starting to sit and we were going into a more normalized market. Somewhere around mid-September it picked back up again. We started getting more multiple-offer situations.”

Gonzales has been seeing things quicken too. Calls and visits to Redfin’s website by prospective buyers were up 50% in September, and those house hunters are now out shopping.
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“They were frustrated with the way the market was going. A lot of them took a break,” he said. “Now it’s a prime time to come back in.”

And as they do, the pace of home sales should pick up even more speed, analysts said.