Depending on who is reporting origination numbers, access to mortgage credit is either tight or loose. For example, a recent report from TransUnion [1] found substantial increases in the number of subprime and near prime loans originated in Q2, which would indicate that credit access is loosening. The Urban Institute maintains [2], however, that if the same lending standards had been in place in 2015 that were in effect in 2001, mortgage lenders would have made 1.1 million more loans than they did last year.
Several advocacy groups and civil rights groups are among those who believe that access to mortgage credit is too tight. Twenty-one of these groups (which include Center for Responsible Lending, The Leadership Conference on Civil & Human Rights, National Community Reinvestment Coalition, the National Fair Housing Alliance, and the NAACP) wrote a letter on Thursday [3] to Federal Housing Finance Agency (FHFA) Director Mel Watt and Treasury Secretary Jack Lew expressing concern that too many creditworthy low- and moderate-income borrowers are being denied access to mortgage credit.
In particular, the letter writers were concerned that the GSEs, which are regulated by the FHFA, are not meeting their affordable housing goals—which the groups believe they can do by loosening the credit box.
“FHFA needs to address the Government Sponsored Enterprises' problematic affordable housing goal performance and their pricing,” said NCRC President and CEO John Taylor. “Fannie and Freddie's loan guarantees are not serving the broadest swath of creditworthy borrowers across the credit score spectrum and we believe the way that they are pricing their business is a major reason why. As a result, a lot of low- and moderate-income borrowers are simply not getting access to the wealth-building opportunity of homeownership. The Enterprises' business is narrowly going to those with the most pristine credit, which is contrary to their affordable housing mandates.”
An FHFA spokesperson told MReport, “We have received the letter and will respond.” Watt, who has been Director of FHFA since January 2014, has frequently stated his belief that too many creditworthy borrowers are being shut out from buying a home because they cannot get a mortgage loan. The FHFA’s 2016 Annual Housing Report [4] released in October states, “The Charter Acts that established Fannie Mae and Freddie Mac emphasize their important role in providing a stable source of housing finance that supports access to mortgage credit to low- and moderate-income families and in underserved areas. In line with these responsibilities, the Enterprises carry out numerous activities designed to support the secondary market for lending to creditworthy borrowers who have lower incomes or live in financially underserved communities.”
Treasury had no comment on the letter itself, but officials from the Department have recently addressed the issue. In October, Treasury Counselor Antonio Weiss and Assistant Secretary for Economic Policy Karen Dynan [5] acknowledged that “The impact of the financial crisis on current borrower access to mortgage credit is evident” and that “Constraints on access to affordable credit have ripple effects across the owner-occupied housing market” because it prevents established homeowners from moving or upsizing.
“The government has made significant changes to strengthen the housing finance system and support home buying,” Weiss and Dynan wrote. “For example, financial reform legislation added safeguards to the mortgage application process, and lenders must now assess a borrower’s ability to repay a mortgage. Additionally, the GSEs, at the Federal Housing Finance Agency’s (FHFA) direction, have taken steps to support access and affordability, including encouraging broader access to credit by clarifying lenders’ legal obligations for the mortgages they originate, introducing new low down payment mortgage products, and working to comply with refined housing goals.”
The letter writers acknowledged that both FHFA and Treasury have recently addressed the issue but at the same time suggested more steps the regulators could take to help FHFA better meet its affordable housing goals through expanding credit access. For example, “FHFA's 2017 Scorecard must target a greater level of average-cost pricing than is reflected in the Enterprises' current pricing and a lower return on capital” and “The PMIERS (Private Mortgage Insurance Eligibility Requirements) rule is further complicating access to affordable mortgage credit. The current ‘test-and-learn’ pilots are not enough.”
Click here [3] to read a copy of the letter and view a list of signatories.