Editorial: B&C to Affordable Housing
It's not just subprime lenders that are tightening underwriting standards. Recently, Fannie Mae said that it was adjusting - raising, actually - the pricing on one of its signature affordable housing product lines, MyCommunityMortgage, in response to skyrocketing volumes in the wake of the subprime meltdown.
Implicit in Fannie Mae's decision is a concern that these low-downpayment, flexible underwriting loan programs designed to help low- and moderate-income households afford a home are vulnerable to the kind of credit meltdown seen in the 2006 vintage of subprime loans.
And just as servicers have had to manage the fallout from the subprime crisis, they'll have to monitor the performance of affordable housing loan products as well to ensure that risk is being priced appropriately and that defaults are managed well.
A Fannie Mae executive told this newspaper that it saw 300% growth in volume in its MyCommunityMortgage program recently as lenders tightened the screws on B&C loan products. That's not surprising, since people who can't afford a big downpayment and who have blemished credit records are finding subprime products more expensive and difficult to qualify for than in the past.
Lenders are at a challenging juncture. They need affordable housing products and outreach programs to help borrowers refinance out of loans that reset to high monthly payments that they can't afford. At the same time, they need to guard against early payment defaults and buyback requests from investors that have plagued the industry this year. To strike the right balance between extending homeownership opportunities and managing credit risk, servicers and loan originators will have to work closely together to see what works and what doesn't work.
Nobody wants affordable housing loan programs to blow up the way the 2006 subprime vintage did. But at the same time, affordable solutions are needed today more than ever. Not only can affordable housing products help low- and moderate-income people become homeowners, but they can help existing homeowners retain their property when their current adjustable-rate loan product becomes unaffordable. We applaud the industry for working with troubled borrowers to create loan workouts and refinancing opportunities and avert foreclosure.
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