The Federal Housing Finance Agency has directed Fannie Mae and Freddie Mac to explore “alternate” credit-score models and the credit history of the loans they back. The move is part of several efforts by FHFA to ease tight mortgage standards and help more potential buyers qualify for financing.
FHFA Director Mel Watt has said expanding credit access is an important goal in 2015, but it needs to be balanced against the risk of loan losses. FHFA is the regulator of Fannie Mae and Freddie Mac; the two companies, which were brought under government conservatorship in 2008, purchase more than half of the new mortgages in the U.S. and then package them into securities.
Qualifying for financing has been a big hurdle that has sidelined many potential buyers from the housing market in recent years. REALTORS® continue to cite their clients’ financing struggles in qualifying for a mortgage as one of the top causes of derailing transactions, according to the latest REALTOR® Confidence Index, reflecting responses of more than 1,800 REALTORS® about their transactions in November.
At the end of 2014, FHFA made moves to expand credit availability, including offering loans through Fannie and Freddie that require down payments as low as 3 percent. FHFA also has ordered the GSEs to begin paying into the affordable housing fund, allocating millions of dollars a year to allow states and other government agencies to build low-income rental housing or rehab existing housing in an effort to increase affordability.
Source: “Fannie, Freddie Must Study ‘Alternate’ Credit Scoring: Regulator,” Reuters (Jan. 14, 2015) and “Fannie and Freddie Directed to Aid Underserved Borrowers in 2015,” Bloomberg (Jan. 14, 2015)