California mortgage official says loaning criteria have been tightened too much
Real Estate News From the We Buy Houses
Complaining that even many credit-worthy borrowers can no longer qualify for mortgages, the president of the California Association of Mortgage Brokers on Thursday called for exceptions to underwriting criteria that tightened in response to skyrocketing foreclosures.
The lending industry should create “sensible alternative loan products” that, for instance, would allow people with good credit but nontraditional income to buy homes, Fred Arnold said at a news conference.
Among those who would benefit, he said, are firefighters who regularly work overtime and teachers with second jobs. Under today’s underwriting criteria, he said, lenders frequently won’t consider such supplementary income.
The expansion of the Federal Housing Administration’s role in insuring home loans over the past year has made buying lower-priced homes easier for many first-time buyers. But Arnold said the withdrawal of private investors from the mortgage industry has reduced the range of products available. He said in particular, easier qualifications are needed for borrowers wanting jumbo loans over $417,000 but below $729,700.
“We are hoping the secondary market comes back,” Arnold said. He said it is needed to support mortgages that do not meet the increasingly stringent criteria adopted by Fannie Mae and Freddie Mac, the government-sponsored enterprises that today buy or guarantee many of the nation’s mortgages.
Arnold said he is not advocating a return to the ultra-liberal lending practices of a couple years ago. But he said the continued tightening of underwriting requirements is excessive because falling home prices have taken much of the risk out of the mortgage market.
“These corrections they are making should have been made a year or two ago,” Arnold said in an interview. “The people buying today are qualified buyers with good credit and good debt-to-income ratios and they are finding it extremely difficult to get financing.”
Brad German, spokesman for Freddie Mac, said it makes sense that the agency bas become more careful about the loans it will purchase from lenders.
“This is one of the weakest credit markets in a decade,” he said. “Obviously underwriting standards and credit requirements are going to tighten.”
German said the fees that Freddie Mac charges lenders for mortgages are lowered to reflect borrowers with higher credit scores or who make substantial down payments.
FHA spokesman Lemar C. Wooley noted that the government agency is generally more lenient than the rest of the industry. The FHA requires only a 3 percent down payment, for example, compared to the 10 percent or more required by conventional lenders.