Make us your home page
Instagram

The Nation's Housing: Federal agencies consider mortgage reform

Agencies consider mortgage reform

WASHINGTON — Two federal agencies with influence over the mortgage market are working on how to encourage private lenders to ease up on their underwriting restrictions.

Both the Federal Housing Finance Agency, which oversees giant investors Fannie Mae and Freddie Mac, and the Federal Housing Administration, which runs the low-down-payment program, are considering steps they might take to persuade lenders to open the mortgage spigots a little wider. The focus of their reform projects: the "overlay" rules many lenders have adopted that lump extra fees, larger down payments and higher credit-score requirements onto home loans than Fannie, Freddie or FHA require.

Some banks require full appraisals, credit checks and add-on fees. Other lenders may limit eligibility for the program to customers they already service, despite the fact that FHA allows borrowers to seek streamline refinancings from any FHA-approved lender.

Why are lenders making it tougher for creditworthy applicants to obtain a mortgage? Tops on the list: "defensive lending." "Defensive lending is the mortgage equivalent of defensive medicine," where doctors run more tests than needed to reduce litigation risk, says Brian Chapelle, principal at Potomac Partners in Washington, D.C. "Mortgage lenders are adding underwriting requirements and program restrictions to avoid overstepping a sometimes ambiguous line" that will trigger penalties from Fannie, Freddie or FHA.

Even minor technical infractions in underwriting or documentation can cause "buyback" demands by Fannie or Freddie when loans go into default, with costs per loan for the lender sometimes soaring to hundreds of thousands of dollars. Plus the Justice Department is putting pressure on major banks to pay millions to settle allegations of flaws in their mortgage practices — settlements the banks consent to not on the merits but to avoid protracted litigation and hits to their stock prices.

Banks and other originators also are uncertain about upcoming mortgage regulations that will spell out the rules for future lending.

What to do? The two agencies are mum about specifics but are expected to announce reforms in the coming weeks.

Lenders, on the other hand, know precisely what they'd like to see. Steve O'Connor, senior vice president of the Mortgage Bankers Association, says lenders want several key changes in current procedures, including clear, point-by-point guidance on how the agencies will define reasonable grounds for buybacks or indemnifications going forward. Lenders also need assurance that after an agreed-upon period of time, they will not be blamed for deficient underwriting on a loan that goes belly up.

FHA lenders, said Chapelle, also want greater fairness in the way they're treated when loans default.

The Nation's Housing: Federal agencies consider mortgage reform 07/07/12 [Last modified: Saturday, July 7, 2012 4:31am]
Photo reprints | Article reprints

Copyright: For copyright information, please check with the distributor of this item, Washington Post - Writers Group.
    

Join the discussion: Click to view comments, add yours

Loading...
  1. Carrollwood fitness center employs scientific protocol to help clients

    Business

    In 2005, Al Roach and Virginia Phillips, husband and wife, opened 20 Minutes to Fitness in Lakewood Ranch, and last month they opened the doors to their new location in Carrollwood.

    Preston Fisher, a personal fitness coach at 20 Minutes To Fitness, stands with an iPad while general manager/owner Angela Begin conducts an equipment demonstration. The iPad is used to track each client's information and progress. I also included one shot of just the equipment. The center recently opened in Carrollwood. Photo by Danielle Hauser.
  2. Olive Tree branches out to Wesley Chapel

    Business

    WESLEY CHAPEL — When it came time to open a second location of The Olive Tree, owners John and Donna Woelfel, decided that Wesley Chapel was the perfect place.

    The Olive Tree expands its offerings of "ultra premium?€ extra virgin olive oils (EVOO) to a second location in Wesley Chapel. Photo by Danielle Hauser.
  3. Massachusetts firm buys Tampa's Element apartment tower

    Real Estate

    TAMPA — Downtown Tampa's Element apartment tower sold this week to a Massachusetts-based real estate investment company that plans to upgrade the skyscraper's amenities and operate it long-term as a rental community.

    The Element apartment high-rise at 808 N Franklin St. in downtown Tampa has been sold to a Northland Investment Corp., a Massachusetts-based real estate investment company. JIM DAMASKE  |  Times
  4. New York town approves Legoland proposal

    News

    GOSHEN, N.Y. — New York is one step closer to a Lego dreamland. Goshen, a small town about fifty miles northwest of the Big Apple, has approved the site plan for a $500 million Legoland amusement park.

    A small New York town, Goshen approved the site plan for a $500 million Legoland amusement park. Legoland Florida is in Winter Haven. [Times file  photo]
  5. Jordan Park to get $20 million makeover and new senior housing

    Real Estate

    By WAVENEY ANN MOORE

    Times Staff Writer

    ST. PETERSBURG —The St. Petersburg Housing Authority, which bought back the troubled Jordan Park public housing complex this year, plans to spend about $20 million to improve the 237-unit property and construct a new three-story building for …

    Jordan Park, the historic public housing complex, is back in the hands of the St. Petersburg Housing Authority. The agency is working to improve the 237-unit complex. But the latest plan to build a new three-story building for seniors will mean 31 families have to find new homes. [LARA CERRI   |   Tampa Bay Times]