Government demands mortgage buy-backs even as it tries stimulating bank lending

Miami /
Jun.June 19, 2012 02:15 PM

After demanding banks buy back some $80 billion worth of flawed loans over the last three years, the government-controlled mortgage agencies are now working to help banks increase lending while simultaneously avoiding a similar fate in the future. Bloomberg News reported that the Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac, is concerned that banks are over-tightening their lending standards in response to the perceived buy-back threat and stifling the housing market. Banks have been requiring credit scores on government-backed loans 100-200 points higher than minimums set by the agencies.
The average score for government-backed loan hovers around 760. That standard is met by just 40 percent of Americans, shutting out between 10 percent and 20 percent of worthy borrowers, according to Shaun Donovan, the secretary of the Department of Housing and Urban Development.

“The lenders perceive the pendulum has swung too far, and they’re being held accountable for things beyond their control,” said Brian Chappelle, a partner at the bank consulting firm Potomac Partners. “Their reaction is going to be to tighten up.”

In the first quarter, Fannie and Freddie demanded banks buy back $15.3 billion in mortgages in their ongoing effort to minimize losses following taxpayer bailouts. Banks typically end up paying half of the unpaid principal balance when they are forced to buy back mortgages. [Bloomberg]


Related Articles

arrow_forward_ios
Frank Simone and Christina Pappas with the Miami skyline (Getty images)
Tighter lending standards foiling condo deals after Surfside collapse
Tighter lending standards foiling condo deals after Surfside collapse
Masoud and Stephanie Shojaee and Ten30 South Beach (Shoma Group)
Shoma completes Ten30 South Beach condo project near Lincoln Road
Shoma completes Ten30 South Beach condo project near Lincoln Road
Daily Digest Miami
Related is heading to the river, Soffer eyes Fontainebleau Miami Beach expansion: Daily digest
Related is heading to the river, Soffer eyes Fontainebleau Miami Beach expansion: Daily digest
Fannie Mae CEO Hugh R. Frater, and Freddie Mac CEO Donald H. Layton
Fannie Mae and Freddie Mac financing riskier mortgages to indebted homeowners
Fannie Mae and Freddie Mac financing riskier mortgages to indebted homeowners
Home buyers in front of a house (Credit: iStock)
Lenders opening doors to a wider swath of home buyers
Lenders opening doors to a wider swath of home buyers
Brickell Flatiron scores Fannie Mae approval and lowers deposits
Brickell Flatiron scores Fannie Mae approval and lowers deposits
Brickell Flatiron scores Fannie Mae approval and lowers deposits
Mortgage giant Freddie Mac names new CEO amid privatization talks
Mortgage giant Freddie Mac names new CEO amid privatization talks
Mortgage giant Freddie Mac names new CEO amid privatization talks
Buying a home just got easier for many in the gig economy
Buying a home just got easier for many in the gig economy
Buying a home just got easier for many in the gig economy
arrow_forward_ios

The Deal's newsletters give you the latest scoops, fresh headlines, marketing data, and things to know within the industry.

Loading...