Fear of making bad loans and regulatory uncertainty are forcing lenders to restrict credit to all but the best borrowers, according to the head of the Mortgage Bankers Association.
MBA president and chief executive David Stevens told a consumer group Friday that bank executives and boards are telling their mortgage units, “Don’t make any bad loans. We don’t want to see our name in the headlines again.”
At the same time, the residential finance industry is facing implementation of a whole new regulatory regime. Pending rules—many of which will be decided in the months ahead—will impact disclosures, originations, loan officer compensation, servicing, appraisals and even capital requirements that likely will reshape the industry for years to come.
Right now, “lenders don’t know what the rules will be,” Stevens told the Consumer Federation of America. He noted that mortgage firms are compensating for the uncertainty by carefully reviewing and checking every loan, passing on extra operational costs to borrowers.
And while borrowers generally face tight lending standards, this is not the case with the HARP refinancing program. Under the Home Affordable Refinance Program, Fannie Mae and Freddie Mac have clearly spelled out the guidelines for refinancing borrowers with high LTV loans while reducing the lender’s risk of having to repurchase loans that go to into default.
As a result, funders are more willing to make HARP loans and the program has been a “success,” Stevens said.
The GSEs this week reported that mortgage companies have refinanced 709,000 loans through HARP since January with 300,000 having LTVs north of 105%.
The MBA president—a former FHA commissioner—stressed that the mortgage market will not function properly until there are clear rules of the road that protect everybody. This will allow consumers to borrow safely and mortgage firms to lend safely, he said.
Stevens expects most of the pending mortgage regulations to be in place by the end of 2013.