Realtors call to increase mortgage lending
by Tim Manni
Is the current lending environment turning away too many qualified borrowers? Could the housing market be in much better shape if we approved more home loans?
The National Association of Realtors (NAR) thinks so, and they announced as much during their 2010 conference this week. Obviously, Realtors depend on home sales to support their incomes, and easier credit requirements mean more buyers which equals more home sales.
But while it may be easy to just write off the NAR’s announcement as one trade group trying to rev up more business, or that this may be a signal that mortgage lending is beginning to relax way too soon, allow me to point out that I’ve heard this same point from mortgage lenders as well.
Back in May I spoke with several mortgage lenders who felt the restrictions that credit-score requirements place on borrowers alone is a serious factor that’s restricting housing’s recovery.
“The flaws in FICO scoring will be greatly magnified by the current economic circumstances that are forcing many to sub satisfactory scoring as a result of forces beyond their control,” said Vernon Appenzeller, Senior Loan Officer and 40-year veteran of the mortgage industry. “It’s difficult to have a housing recovery hampered by a scoring model designed to operate in a completely different environment than today.
“A skilled underwriter can dissect a credit report and reveal patterns of chronic delinquency, simple oversight or circumstantial (job loss, divorce…the human condition) delinquencies, and render a more holistic ’score’ than the FICO model and determine acceptable risks much more accurately without blocking an applicant’s access to certain mortgage programs simply because of a machined score.”
How is the NAR proposing to increase mortgage lending?
As part of its credit policy to increase mortgage lending to qualified borrowers, NAR will develop educational materials for REALTORS® and consumers about credit issues, including the importance of good credit, lender credit policies, and how to find a fair and affordable mortgage.
NAR will also work with FHA, the GSEs, lenders and federal regulators to encourage them to assess their credit policies on a regular basis, and will urge them to re-evaluate their policies regarding which home owners can qualify for loan modifications, short sales, or deeds-in-lieu of foreclosure to help more home owners keep their homes or, when that is not possible, help them begin to rebuild their credit.
In addition, NAR made a series of recommendations to FICO Corp. and lenders to amend certain rules on the utilization of credit and how negative credit scores affect future home purchases, and to change how they report and treat loan modification and payment plans. Other recommendations include making credit scores and credit reports available to borrowers against whom adverse action has been taken, and conducting research on the impact of credit policies on underserved groups.
In this new period of historically-low mortgage rates, we’ve asked many times, “what good are low rates if no one can access them?” I’m of two minds about any push to increase lending right now. HSH has weathered many of the mortgage market’s ups and downs over the last 30 years, and we can tell you first hand that history always manages to repeat itself. After a downturn, lenders restrict their lending practices and raise standards. After a while, business gets slow and the pressures of making enough loans to stay in business start to filter in. Standards fall, lending increases, and around we go.
Is the Realtors’ new policy to increase mortgage lending justified or premature? Are there enough mortgage veterans — like Appenzeller — left who can properly underwrite loans that will allow housing to move safely forward? Unfortunately, that remains to be seen.
We’d love to hear from some professionals around the industry (and consumers). Do you think it’s time to start easing standards to increase lending? Leave us a comment below.
