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We finally experienced the long anticipated short-term interest rate hike by the Fed. Now, what happens?
There are all kinds of speculation. Some say it will help while others say it might hurt. When might the fed do it again? Much depends on how the economy reacts. We shall see. The stock market sure liked it, at first, now it’s not so sure.
One thing we’re hearing is that with a slight rise in the rates, more familiarity with the QM & ATR rules, and clarifications from the agencies on buy backs, some lenders are talking about the easing of underwriting standards to spur more loan approvals.
According to Fannie’s recent Mortgage Lender Sentiment Survey, the share of lenders that may ease their credit standards rose 16% while those who say they will continue to tighten dropped by about 2%. Further, the report revealed that more lenders eased their credit standards in the 4th quarter of 2015 than those that tightened them. Things may be looking up for potential homebuyers.
Part of the decision to ease approval standards is based on the new agency rules pertaining to potential repurchases. A lender will be released from repurchase when a loan performs for 3 years, is current at the time, and was not 30 days past due more than twice, and was never 60 days or more past due. The one caveat is the lender is still held totally accountable for any loan misrepresentations. That lasts for the life of the loan.
Although the easing of some credit standards may be good for home buyers, if not applied properly it could put lenders right back in the agencies cross hairs for loan repurchases. Lenders still need to be very careful to originate and deliver quality loans which comply with all agency requirements. The loans originated must perform for at least the initial 3 year period, without defaults, and are accurately documented to avoid misrepresentation of the information used for the loan approval. All loans must also be legally compliant. Otherwise, the eased credit standards may lead to increased loan liabilities.
With credit standards easing, pre and post-closing quality control audits become more important. It is critical to a lender’s success to ensure that every loan meets the secondary market eligibility requirements, is properly disclosed and meets all legal requirements, and is adequately documented to ensure compliance with agency guidelines and QM/ATR requirements. Quality is king.
A slight rise in rates, signaling a recovering economy, lenders easing credit standards to approve more loans for prospective home buyers, the agencies limiting lender’s liability for potential buybacks, all point to a good outlook for housing and mortgage lending in 2016.
We seem to be on the right track. Please lend responsibly.
