“No matter how many times Lucy pulled the football away, she always managed to persuade Charlie Brown to trust hope over experience and try to kick again. Federal housing-finance regulators are attempting a similar feat as they try to expand access to home loans…

…This kind of rule tinkering isn’t likely to loosen credit availability noticeably, at least in the short term. Banks are twice shy, while also looking at loans through the prism of what they would be willing to keep on their own books. What’s more, bank executives are well aware that they face scrutiny not just from FHFA, but other overseers not bound by its decisions, such as the Justice Department. So Mr. Watt can hold out the ball and say all the right words. But he can’t make banks charge down the housing field.”, John Carney, “Don’t Bank on Easier Mortgage Credit”, Wall Street Journal

Heard on the Street

Don’t Bank On Easier Mortgage Credit

New FHFA Rules Won’t Lead to Easier Mortgage Restrictions Soon

The Federal Housing Finance Agency is trying to persuade banks to relax their home-lending standards.

By John Carney

No matter how many times Lucy pulled the football away, she always managed to persuade Charlie Brown to trust hope over experience and try to kick again. Federal housing-finance regulators are attempting a similar feat as they try to expand access to home loans.

The problem: Big banks may not be so eager to trust that the ball will remain in place.

At issue is the ability of Fannie Mae and Freddie Mac to require banks to repurchase loans that don’t meet their standards. In recent years, firms such as Bank of America and J.P. Morgan Chase have faced tens of billions of dollars of such repurchase demands. They have paid tens of billions more to settle litigation over sales of faulty mortgages.

To avoid such costs in the future, banks have put in place lending standards that intentionally overshoot Fannie and Freddie requirements. The result of these so-called credit overlays is tighter mortgage lending than regulators would like.

In a speech Monday, Federal Housing Finance Agency head Mel Watt sought to persuade banks to reassess the overlays. Specifically, he said Fannie and Freddie will provide details on what faults can trigger a repurchase even after a loan has entered a so-called safe-harbor after three years.

This kind of rule tinkering isn’t likely to loosen credit availability noticeably, at least in the short term. Banks are twice shy, while also looking at loans through the prism of what they would be willing to keep on their own books. What’s more, bank executives are well aware that they face scrutiny not just from FHFA, but other overseers not bound by its decisions, such as the Justice Department.

So Mr. Watt can hold out the ball and say all the right words. But he can’t make banks charge down the housing field.

Posted on October 21, 2014, in Postings. Bookmark the permalink. Leave a comment.

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