Fannie Mae, Freddie Mac, the Federal Housing Finance Agency and the
Obama administration over the past year have tried mightily to expand
mortgage access for riskier borrowers.
But despite those efforts, there’s little evidence so far of borrowers with weaker credit making a strong return.
On
Tuesday and Thursday, Freddie and Fannie released their quarterly
earnings reports. Both companies said that the credit scores of loans
that they back are actually higher year-to-date than they were last
year. Freddie, for example, says that this year through June the
weighted average credit score of loans it purchased from lenders was
751–on a scale of 300 to 850–up from 744 in 2014.
To be sure,
mortgage rates dropped early this year, causing a boom in refinance
activity. Borrowers who are refinancing tend to have higher credit
scores and more home equity than people buying homes, which obscures the
picture.
The percentage of mortgage borrowers backed by Fannie
and Freddie with low credit scores or a low down payment has also risen
since mid-2013, even though it has dropped recently with a change in the
companies’ business mix.
Still, with such an abundance of
anecdotes from lenders who say they’re making it easier to get a
mortgage, you would expect there to be a more significant change.
So what’s going on?
Some lenders are still afraid of getting sued or of taking another hit to their reputations.
On
Thursday, Fannie Mae CEO Timothy J. Mayopoulos said that Fannie and the
FHFA have made great strides toward working with lenders to ease their
concerns about being hit with penalties by Fannie years after they’ve
made a loan.
Problem is, Fannie isn’t the only entity that
lenders have to answer to. In the past few years, lenders have been
under scrutiny from the Justice Department, Consumer Financial
Protection Bureau and dozens of state attorneys general and lawmakers
for alleged mistakes and abuses before, during and after the financial
crisis. Some lenders think the scrutiny is overzealous and have pulled
back from making certain loans as a result.
“When I meet with
lenders, it’s very clear that there’s great concern about the legal and
regulatory enforcement from any number of players at the federal and
state level. It’s not something that we at Fannie Mae control,” Mr.
Mayopoulos said. He said that the actions have had a “substantial effect
on the mindsets of lenders, at least as they express it to me.”
Many borrowers with mortgage-eligible but poor credit don’t know they could qualify.
Even
though some lenders have said that they’re expanding mortgage access,
some borrowers have had it beaten into their heads over the last few
years that it’s hard to get a mortgage. Those perceptions are hard to
change, even if the reality has.
read more: http://blogs.wsj.com/economics/2015/08/10/why-risky-borrowers-still-arent-getting-mortgages/
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