At the MBA Conference there are a few things we always listen for. One of them is any hint at a change to borrower credit standards...did we hear anything good this time?
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Hey, what’s going on you guys? It’s Ken Perry coming to you from the Portland Airport. Thursday morning, I missed my Wednesday update, but I didn’t want to leave you hanging so here it is. I will give it to you Thursday morning.
This week I want to talk about credit standards, and here’s the big thing. Credit standards have been so tight in the mortgage industry for so long. We haven’t been able to do pretty much anything in forever. Everybody tightened up. Credit score in Fanny Mae is in the 700s on average; it’s 682 for FHA, and it’s just been way too tight. Private money hasn’t really gotten back into the market and it’s been really difficult to get a loan for anybody that falls below perfect, basically.
Last week, when we were at MBA and we listened to Fanny Mae and Freddy Mac and also the Federal Housing Finance Agency that regulates those two, I learned something interesting. I was listening for something specific which was for any of them to talk about loosening credit standards. And when the Federal Housing Finance Agency, Mel Watt, stood up and said “it’s way too tight right now, way too difficult to get a loan,”--and that’s the guy that controls Fanny Mae and Freddy Mac. When he starts pressing on that and then Fanny and Freddy come across with their guarantees they’re doing now--that you won’t have buy back (specifically Fanny Mae followed by Freddy Mac later), but that you won’t have buy back as long as you use their tools—it’s clear that everybody knows that the credit standards need to loosen up, it’s way too ridiculous. And so, Fanny and Freddy moving in that direction, which is great.
What you’ll most likely see now—and I can almost promise you this—you can now count on a reemergence of Alt-A and some legitimate subprime loans coming on the market. I can tell you that those are on the way, I can tell you that credit standards are in the process of loosening because right now everybody’s making their mortgage payment. And when you have zero default, zero delinquency (almost) on these products, when FHA is at zero net to delinquency, what you’ll see is everybody going hey guys, we need to do some crazier stuff. I don’t mean 80/20 non- owner occupied stated on a manufactured home, I mean that you’re going to see some loosening guidelines pretty quickly, and some brand new lenders begin to emerge that are picking up that market.
So, I want to let you know and I’ve said it in my seminars all year, I said it just yesterday in front of 101 people at an MLMS CE class, and I’ll say it again as it happens. You guys, it’s about to get crazy in here. Let’s make sure we’re responsible with this new lending, make sure you read up on Fanny and Freddy’s new commitments to you, and we’ll see you guys next week.