New Fannie, will boost the connected
May 14, 2014, 11:11 AM ET
New guidelines for Fannie Mae and Freddie Mac will support Wells FargoWFC -0.04%, J.P. Morgan ChaseJPM -0.24%and other lenders, with a regulator directing the federally controlled mortgage-finance giants to support credit access and curb banks’ exposure to mortgage risk, analysts noted Wednesday.
Mel Watt, director of the Federal Housing Finance Agency, said Tuesday that he will not lower limits for mortgages backed by Fannie FNMA and Freddie FMCC , and that he’s relaxing terms for when the government sponsored enterprises demand sellers repurchase a bad loan, among other actions.
“Overall, the strategic goals are positive for lenders,” Edwin Groshans of Height Analytics wrote in a Wednesday research note. “The expectation is that lenders will be willing to expand the credit underwriting criteria for borrowers and result in a higher level of approvals, especially for riskier borrowers.”
Lenders have paid billions to settle suits over bad loans sold to Fannie and Freddie, and banks have been wary of loosening standards that they ratcheted up in the wake of the financial crisis. Data signal that there has been some easing in credit access, but that banks are focused on serving upper-income customers, leaving many credit-worthy borrowers unable to obtain a mortgage.
By easing Fannie and Freddie’s repurchasing standards, FHFA’s Watt hopes to encourage more lending.
“Repurchase risk remains a top concern for the mortgage industry,” Watt said Tuesday. “Ultimately, this undermines the goal of improving access to mortgage credit for creditworthy borrowers.”
The timing of the directive could help spur lending. Banks are hungry for revenue — mortgage rates stepped up over the past year, plunging refinancing applications and hitting loans to buy a home.
“Generally, we think the speech was a positive for lenders, mortgage insurers, and homebuilders as the speech signaled a willingness by FHFA to stimulate the housing market,” Keefe, Bruyette & Woods analysts wrote in a research note.
The moves from FHFA are of particular importance as the housing market’s recovery appears to be slowing down, and U.S. lawmakers are making little progress on advancing legislation to reform the country’s housing-finance system. A Senate panel is scheduled to work Thursday on a housing-finance-reform bill, but analysts say chances of passage this year are slim.
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