Mortgage Blog

A New Plan to Expand Mortgage Credit Opportunities

Mortgage Basics

One of the biggest complaints about the housing market since the financial crisis has been the somewhat-predictable overcorrection from credit that was too loose to a period of severely tight credit standards. So tight that then-Federal Reserve Chairman Ben Bernanke even famously lamented his probable inability to be approved for a mortgage, despite his good credit. Since then, lawmakers, regulators, and the mortgage industry have tried a number of programs and approaches to “expand the credit box” and allow more credit-worthy borrowers to qualify for mortgages. However, most efforts have been met with modest success, at best. One of the reasons why credit remains so tight is that the “secondary” market has yet to recover. If you’ve seen The Big Short, then you know that this private market is where mortgage-backed securities are bought and sold – the engine of the mortgage industry during the 2000’s. According to The Wall Street Journal, in 2003 over $269 billion in such bonds were issued; last year a mere $1.67 billion, indicating private financiers still harbored many doubts about the health of the market. While Fannie Mae and Freddie Mac and other government-sponsored entities (GSEs) provide the lion’s share of financing, those private secondary markets are particularly crucial for borrowers who are self-employed, have less-than-perfect credit, or otherwise don’t fit into the narrow credit profile approved by regulators for government-backed loans.

That may begin to change this week, as public-private experts plan to launch a new effort to revitalize this critical piece of the mortgage finance process. As the WSJ describes, “Monday’s announcement mostly outlines the principles of a “deal agent,” a firm that would look out for investors’ interests as a bond is administered. In the newly created role, the agent would enforce the terms of a mortgage bond and have the power to negotiate changes in terms if needed.”

While there is still much to be worked out, if the plan succeeds, it is more than just a benefit to lenders and Wall Street investors. Consumers would see lower mortgage rates and an expansion of credit to more than just those with a large down payment and perfect credit. Click here to read more.