Government’s moves to ease mortgage credit are mostly for show | Katonah Real Estate

The regulator of Fannie Mae and Freddie Mac, Mel Watt, said he would not reduce home loan limits, as planned by his predecessor as director of the Federal Housing Finance Agency, Ed De Marco. Plus, in the most widely quoted promise in his speech at the Brookings Institution, Watt said he doesn’t believe his role is to “contract the footprint” of Fannie and Freddie. In other words, gradually shrink their roles or significance in the housing marketplace in preparation for their eventual total phase out by Congress.
Watt also announced that his agency will permit Fannie and Freddie to use “compensating factors” to accommodate loans from borrowers whose back-end debt-to income ratios exceed 43 percent. Compensating factors allow lenders to approve loans when applicants may have elevated DTIs but also have counter-balancing strengths, such as substantial financial reserves, high credit scores, among others.
FHA Commissioner Carol Galante announced a “blueprint for access” designed to lower the costs of obtaining an FHA mortgage for underserved borrowers. HUD Secretary Shaun Donovan called Galante’s plan, which would extend reductions in mortgage insurance fees to buyers who complete a counseling course, “a win for the market, FHA, lenders and borrowers.”

All that sounded upbeat and was heartily welcomed by groups such as NAR, the Mortgage Bankers Association and the home builders. It sounded like good news in a week that saw prospects for long-term reforms of Fannie Mae and Freddie Mac dim in a split vote by the Senate Banking Committee.

But how significant were these promises by Washington politicians and what will the changes really mean on the ground for real estate professionals and their clients? Much less than it all appeared to audiences eager to hear that credit standards finally are going to start loosening up for mortgage applicants.