A shift by the federal regulator of Fannie Mae and Freddie Mac could soon make getting a mortgage loan easier by giving lenders more wiggle room before the mortgage giants demand that they repurchase loans.
In his first public remarks since taking over as head of the Federal Housing Finance Agency, Mel Watt said he wants to address uncertainties surrounding the “representation and warranty” standards that can trigger repurchase demands.
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Watt said Fannie and Freddie will continue to allow Fannie and Freddie to approve loans with debt-to-income levels above 43 percent when borrowers have “other compensating strengths,” and keep current loan limits in place.
Those moves could embolden lenders to approve mortgages to borrowers who meet all of Fannie and Freddie’s other underwriting requirements, but who previously might have seemed to pose too great a repurchase risk.
When lenders have done their due diligence and made sure borrowers meet Fannie and Freddie’s underwriting standards, the mortgage giants keep payments flowing to investors in mortgage-backed securities that mortgages are bundled into, even when borrowers default.