The head of a powerful housing regulatory agency announced new steps Monday intended to expand home lending facilitated by Fannie Mae and Freddie Mac.
Mel Watt, the director of the Federal Housing Finance Agency that oversees the two bailed-out government mortgage businesses, said in a speech to the Mortgage Bankers Association in Las Vegas that his agency would work to clear up some of the legal impediments to greater mortgage lending by banks and aim to increase loans with down payments as low as 3 percent.
“We know that access to credit remains tight for many borrowers, and we are also working to address this issue in a responsible and thoughtful manner,” said Watt, who took over at the FHFA in January and has reversed course from his predecessor, who sought to reduce the role of Fannie and Freddie in the home lending market.
Watt said his agency was working with Fannie and Freddie to provide “clear rules of the road” to allow lenders to sell the two government-sponsored enterprises home loans without fear that Freddie and Fannie would later require them to repurchase underperforming loans on the grounds that they were misrepresented. Fannie and Freddie do not make home loans directly, but rather create a secondary market for mortgages by buying them from lenders, bundle them into securities to sell to investors and offer insurance on those mortgage-backed securities.
Fannie and Freddie have required tens of billions of such “buybacks” of loans since the financial crisis, which banks have said have led them to impose extra credit requirements on borrowers to avoid similar losses. Top bankers and Obama administration officials, in turn, have blamed tight credit for weakness in the housing market.
Watt said Monday that he and the government-sponsored enterprises had reached agreement regarding the terms under which lenders would face putbacks relating to misrepresentations, inaccuracies and other aspects of loan contracts.
He also added that he was working with Fannie and Freddie to develop “sensible and responsible guidelines” for home loans with down payments between 3 and 5 percent. “Through these revised guidelines, we believe that the enterprises will be able to responsibly serve a targeted segment of creditworthy borrowers with lower-down payment mortgages by taking into account ‘compensating factors,'” Watt said, without detailing those factors.
Watt announced in his first speech in May that he would reverse course from his predecessor, Ed DeMarco, and aim to increase home lending to borrowers with less than perfect credit. In past months he has pursued that policy by postponing an increase in the fees charged to investors for guaranties on mortgage-backed securities and by raising the government-sponsored enterprises’ goals for lending to low-income families, among other steps.
