Daily Briefing Weekend Edition

Realtors Want GSEs to Ease Underwriting Requirements

By Brian Collins

The National Association of Realtors is pushing Fannie Mae and Freddie Mac to reconsider their lending policies NAR feels have increased the cost and availability of mortgage credit.

The NAR contends the two government-sponsored enterprises have overacted to market conditions and it could contribute to further house price declines and delay a recovery. "Many small individual policy decisions designed to keep the enterprise financially sound, when layered one upon another, have created major impediments to healthy mortgage and housing markets," the NAR says in separate letters to Fannie and Freddie.

The trade group is particularly concerned with Fannie and Freddie's declining market policies that require borrowers to put up larger downpayments in markets where home prices are declining.

Instead of applying this policy to local markets, the GSEs are "stigmatizing entire metropolitan statistical areas as declining markets," the NAR says in the April 11 letters. "The impact of the policy becomes a self-fulfilling prophecy that creates declining markets that did not exist before and intensifies the decline for markets that are declining and delays their recovery," NAR president Richard Gaylord says.

In response, Freddie executive vice president Patricia Cook acknowledged that some lenders have adopted an "overly broad interpretation" of the agency's declining markets policy. "I fear our communications may have resulted in credit being limited unnecessarily in some areas," she says in a letter to NAR president-elect Charles McMillan.

Freddie advised its lenders to use the Office of Federal Housing Enterprise Oversight's housing price index to determine if a property is in a market where prices are declining and the maximum amount of financing should be reduced by 5%.

Ms. Cook said the HPI should not be used as "conclusive evidence" that every market in a metropolitan statistical area is declining. "If a lender and/or appraiser determine that the prices in a particular area are actually stable or increasing, and sufficient supporting evidence is provided, the 5% reduction would not apply," Ms. Cook says.

Freddie's May 9 letter also says it is working on "job aid" to help lenders "apply our declining markets policy appropriately."

Fannie president and chief executive Daniel Mudd reminded the Realtors that Fannie continues to provide funding and stability to the conventional conforming mortgage market, despite increasing delinquencies, defaults and foreclosures. "But market conditions have required us to reassess our pricing, underwriting and eligibility policies and make some tough decisions," Mr. Mudd says in an April 28 letter.

The Realtors felt better about Mr. Mudd's response after the CEO said a week later that Fannie is prepared to offer better pricing on jumbo loans to help jump-start that market.

Fannie will price jumbos as if they were securitized in the TBA (to-be-announced) market, Mr. Mudd told investors and Wall Street analyst during a May 6 conference call.

Now the Realtors are waiting for Freddie to state that it will reduce its fees on jumbo loans. House Financial Services Committee chairman Barney Frank, D-Mass., reiterated last week that he is "disappointed" that Fannie and Freddie have not been aggressive in entering the jumbo market. And the committee will hold a hearing this week "to find out why we haven't gotten more action on the jumbos," Rep. Frank told the Realtors at their legislative conference last week.

NAR is not the only industry group complaining about the additional fees and tighter underwriting standards the GSEs have adopted over the past six months.

Banks and affordable housing groups also are concerned about the GSE policies.

ShoreBank is having problems originating affordable mortgages that Fannie and Freddie will purchase or guarantee, according to Ellen Seidman, an executive vice president at the Chicago bank. "That is a serious problem because we have to portfolio the loans," Ms. Seidman said at a Consumer Bankers Association conference. The cost of private mortgage insurance also is a problem. "It is virtually impossible to get mortgage insurance" for borrowers with a credit score under 620. "And it is very expensive between 620 and 680," Ms. Seidman said.