New Policies Could Make Mortgages Easier To Get

By Margaret Chadbourn

WASHINGTON -- The regulator of Fannie Mae and Freddie Mac laid out new policies Tuesday that could make it easier for many Americans to obtain mortgages, in part by holding off on any reduction in the size of loans the firms can buy.

Federal Housing Finance Agency Director Mel Watt, in his first public speech since taking office in early January, also said the two government-controlled mortgage finance giants would ease standards that govern when banks must buy back faulty loans from them, which could also help loosen the credit taps.

"FHFA will not use its authority as conservator to reduce current loan limits," Watt told the Brookings Institution. "This decision is motivated by concerns about how such a reduction could adversely impact the health of the current housing finance market."

The common stock of the two firms shot up more than 6 percent to around $4.50. Preferred shares also gained, but not as sharply.

In his remarks, Watt made clear he would put a heavier emphasis than his predecessor on having Fannie Mae and Freddie Mac ensure the mortgage market has ample liquidity.

He also said he didn't see it as his role to offer advice on the future of the firms, which were seized by the government at the height of the financial crisis. That role, he said, should be left to Congress and the White House.

%VIRTUAL-article-sponsoredlinks%"Our overriding objective is to ensure that there is broad liquidity in the housing finance market and to do so in a way that is safe and sound," Watt said.

In easing standards for so-called mortgage put-backs -- when banks are required to repurchase faulty mortgage they sold to the two companies -- Watt took aim at a risk lenders cite for the still-tight credit that has hindered the housing recovery.

Tight lending standards have made it especially hard for first-time buyers and those with weaker credit to get mortgages.

Watt said Fannie Mae and Freddie Mac, which buy about 60 percent of new home loans and package them into securities they issue with a guarantee, would expand the universe of loans exempt from repurchase requests by relaxing the mortgage payment history requirements lenders would need to meet.

"Repurchase risk remains a top concern for the mortgage industry," Watt said. "Ultimately, this undermines the goal of improving access to mortgage credit for creditworthy borrowers."

Watt said mortgages would be exempt from put-back requests if borrowers made at least 34 of the first 36 payments on time. Previously, none of those payments could have been delinquent. Banks will also be able to avoid repurchasing loans if they complete certain reviews. The policies take effect July 1.

He also said FHFA was looking to take further steps to provide "additional clarity" on put-back risk.

Watt's predecessor Edward DeMarco had earned a reputation as a staunch protector of the taxpayers who had bailed out Fannie Mae and Freddie Mac to the tune of $187.5 billion, but housing advocates felt he did not do enough to help Americans whose home values plummeted when the U.S. housing bubble burst.

Signaling a new tack, Watt announced a pilot program in Detroit that would permit "deeper loan modifications" than currently available under a program that helps borrowers who owe more than their home's market value to refinance loans owned or guaranteed by Fannie Mae or Freddie Mac.

He said FHFA planned to build on the experience gained during the pilot to expand the program to other parts of the nation that have been hit hard by foreclosures.