Rigid Mortgage Standards Are Here: Fannie Mae

Mortgage lending standards were the lowest during the recent housing boom. This leniency also brought the lending industry down with the housing bubble burst that started in 2008.

Lenders all over the country have had to significantly tighten their loan applicant requirements, which have led to a reduced number of home sales for the past few years. Has this change simply been a swing of the pendulum standards, overcorrecting for the past failures and set to swing back to looser requirements a few years down the road?

According to Fannie Mae Chief Executive Michael J. Williams, it does not mean a return to those loose standards. In speech in July before the Women in Housing organization, Williams made it clear he believes the new standards are the new standard which will be here for generations to come.

“A solid majority of renters assume it will be tougher for their kids to buy a home and they’re right, too,” he said as quoted in the Wall Street Journal, basing his comments on the results of Fannie’s national poll of Americans’ views on housing and homeownership.

“Across the board, we see a much deeper understanding of how credit, income, job security and a down payment could stand in the way of buying a home,” he mentioned. H also added that “this is all healthy. It means we have a good chance to put in place a sustainable housing recovery one with the right mix of owners and renters in this country.”

Currently mortgage borrowers have to wait longer and meet higher income and credit standards before being approved for loans. These rules are safer financially, but they do mean that fewer Americans will realize the dream of homeownership. It’s unclear if these new standards will truly outlast the next economic boom, but at least Williams says his company is making it permanent for its own clients, lenders who want to sell their loans off in order to gain capital for new loans again.

“Step-by-step, we are putting in place a new foundation for our industry,” he said. “It’s a foundation based on the right lending standards and on a broad re-examination of what constitutes sensible risk.”

Currently with Fannie and their sister company Freddie Mac (controlled by the government) backing more than 90 percent of new mortgage loans in the country, those stricter standards may very stay put for the next several decades.

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