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Fixing the Looming Mortgage Crisis

Last week in my blog The Collapse NO ONE is Talking About I discussed the major problems being caused by the lack of qualifications required to qualify for mortgage payment relief provided in the CARES Act.

Millions of loans are already in the mortgage relief program but because Fannie and Freddie are not buying these loans credit and lending have tightened up dramatically.   The uncertainty has forced mortgage lenders to raise minimum credit scores, require higher down payments, triple-check employment status, and even eliminate certain loan types altogether.  Lenders are absolutely TERRIFIED that any loans they give now might go into forbearance before they are able to sell them to Fannie or Freddie.

JPMorgan Chase, the country’s largest lender by assets, is raising borrowing standards this week for most new home loans as the bank moves to mitigate lending risk stemming from the novel coronavirus disruption. From Tuesday, customers applying for a new mortgage will need a credit score of at least 700, and will be required to make a down payment equal to 20% of the home’s value.

Wells Fargo, US Bank, Navy Federal Credit Union, Better.com have all made changes as well some raising their minimum credit scores while others stopped offering FHA loans ALL TOGETHER!

“Credit requirements have gotten tighter across the board. Lenders are raising credit score requirements by 100 points.  We used to do loans down to 520, now we’re up to a minimum 580 credit score; there’s a chance they might go to 700. We hope that doesn’t happen because it will put people at a disadvantage.” – David Lazowski, regional senior vice president at Fairway Independent Mortgage Corp. in Boston.

The Federal Government and its agencies have been FORCED to respond.   The Federal Housing Finance Agency, regulator of Fannie Mae and Freddie Mac, announced that the two mortgage giants will now buy home loans that go into the government’s forbearance program just after they close.

“We are focused on keeping the mortgage market working for current and future homeowners during these challenging times,” FHFA Director Mark Calabria said in the statement. “Purchases of these previously ineligible loans will help provide liquidity to mortgage markets and allow originators to keep lending.”

It is unheard for for Fannie and Freddie to even consider buying delinquent or forbearance loans BUT THEY CREATED THIS MESS!  So what were they going to do?  Let the industry fail because of a mistake they made!? The idiocy of the whole thing knows no bounds.   I still cannot believe we are in this mess in the first place!

All they had to do was put any qualifications of the mortgage relief package, literally anything.

This announcement should hopefully loosen the market somewhat but of course we the tax payers are going to pay for all these mistakes.    (Surprise, surprise right?)

Moving forward Fannie and Freddie have outlined that eligible loans will be assessed an additional loan-level price adjustment — 5% for first-time homebuyers and 7% for non-first-time buyers (this is a fancy way of saying buyers will be assessed an additional fee based on how risky the loan is).  A loan-level price adjustment is passed through to buyers in the form of higher interest rates.

 

The bottom line is that our leaders made a critical error and now new homebuyers are going to be assessed a fee to try and help cover it up.   The only good news is that the federal government has realized the major problem they created and are trying to do what they can to fix it.   Not fixing the problem would create much much bigger issues.