Federal Housing Finance Agency director Mel Watt announced today that regulators would attempt to loosen lending standards that have made it difficult for consumers to purchase homes since the recession began, The New York Times reports.
Regulators chose not to implement a reduction in the size of loans Fannie Mae and Freddie Mac could buy for fear that a reduction may have worsened the health of the current housing market. Additionally, by easing the standards for instances when a bank is required to repurchase a faulty mortgage – often called a mortgage put-back – regulators hope to loosen the tight credit requirements that have hindered the housing market recovery.
“Repurchase risk remains a top concern for the mortgage industry,” Watt said. “Ultimately, this undermines the goal of improving access to mortgage credit for creditworthy borrowers.”
The new policies relax mortgage payment history requirements lenders would need to meet in order for a loan to be exempt from put-back. Currently, no payments can be delinquent, but under the new standard mortgages could be exempt if borrowers made at least 34 of the first 36 payments on time. Banks could also complete certain reviews to avoid repurchasing loans.
Watt also addressed a new pilot program currently being tested in Detroit in which homeowners who owe more than their home’s market value can refinance loans owned or guaranteed by Fannie Mae or Freddie Mac.
Regulators plan to expand the pilot to other parts of the nation hit hardest by foreclosures.
Regulator Opens Door Wider for Americans on Mortgages [The New York Times]