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Mark Zandi: Put-Back Risk, Regulatory Issues Hold Back Recovery

Mortgage lenders are still nervous about put-back risk and unresolved regulatory issues, which is holding back the lending and the housing recovery, according to Moody’s Analytics chief economist Mark Zandi.

When it comes to residential mortgages, “the credit spigot is still too tight,” Zandi said during a VantageSource Solutions webinar Wednesday.

A lot more mortgage credit is needed over the next two years, “if we are going to get the housing recovery kicking into full gear,” he said.

VantgageScore senior vice president Sarah Davies noted that delinquencies on new originations are “very low,” but delinquencies on legacy loans in portfolio are “extremely high.” That expense from the legacy loans could explain “some of the reticence that lenders are reflecting” by restricting access to credit, she said.

Zandi noted that mortgage lenders are still facing a lot of regulatory and legal issues.

“There is still concern about put-back risk. So they have tightened up their own standards—even beyond what Fannie, Freddie and FHA require. We have to nail that down,” he stressed.

In addition, the regulators have not issued the qualified residential mortgage rule, which will set the standard for risk retention in the private-label securities market.

“I really don’t think the credit spigot opens fully until we get the private label-MBS market operating again,” Zandi said. “That is only going to happen if we nail down the QRM risk retention rule.”