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How the Federal Government Is Encouraging Homebuying


[Updated: Dec 11, 2020 ] Mar 24, 2020 by Marc Rapport
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In market machinations the likes of which haven't been seen since the Great Recession, federal agencies on Monday loosened some key rules on mortgage underwriting standards and committed to siphoning up unlimited amounts of related securities to inject liquidity into a wavering homebuying industry.

Fannie Mae and Freddie Mac, a pair of Government-Sponsored Enterprises (GSEs) who operate together under the Federal Housing Finance Agency (FHFA), will now allow some drive-by appraisals for loans they buy and guarantee on the secondary market.

In specific circumstances, that will allow mortgages to be underwritten without appraisers having to actually go into homes, which now is difficult to impossible in many areas because of the coronavirus pandemic. The new rules also allow, in some cases, "desktop appraisals" that preclude even visual examinations of a property's exterior. Fannie Mae detailed those new rules in a letter released Monday, March 23.

The two GSEs also relaxed rules for mortgage applicant employment verifications, which are becoming more difficult to perform as companies that do that work are scaling back staff and restricting their operations.

Verbal verifications are becoming particularly hard to obtain, Fannie Mae says in its letter on that topic, also released Monday. The letter says the new rules now allow email verifications instead, as well as a year-to-date pay stub "from the pay period that immediately precedes the note date."

The relaxed rules are in effect through May 17.

Fed goes on bonds and mortgage-backed securities (MBS) buying spree

Meanwhile, to inject liquidity into the housing market, the Federal Reserve on Monday, March 23, announced it would buy unlimited amounts of agency bonds, including mortgage-backed securities, of the like packaged and sold by Fannie Mae and Freddie Mac. Treasury bonds also were included in the announcement.

The move to inject massive liquidity into a teetering market is intended to head off the kind of mortgage industry collapse that helped send the economy into a tailspin just over a decade ago. That followed last week's announcement by Fed Chairman Jerome Powell that the Fed would buy $700 billion in such bonds. Lifting that lid could drive interest rates down even further into what would be record territory.

Whether that will stimulate buyers in a nation where joblessness appears to be skyrocketing as COVID-19 spreads and employers scale back and shut down remains to be seen. The two measures -- easing FHFA rules and buying bonds and MBS -- will need to counter what reports say is a sharp drawback by wholesale lenders in the mortgage market, especially for borrowers with less-than-stellar credit.

HousingWire reported Monday, March 23, that it had spoken to and seen statements from numerous lenders who have stopped underwriting non-qualified mortgages while raising their standards in regard to FICO scores.

Qualified mortgages meet ability-to-repay standards from the Consumer Financial Protection Bureau that arose from the financial crisis of 2007 to 2008 in the form of Dodd-Frank regulations. They require the lender to confirm that a borrower has the means to satisfy the mortgage.

While private lenders face the decision to keep lending as they have when they can, the mortgage-writing and bond-buying moves are part of a sweeping list of measures that exceed even what was seen in the 2008 financial crisis.

The New York Times says, in an article posted Monday, March 23: "The scope of the package -- which Fed officials, staff and lawyers hammered out over weeks of back-to-back late nights -- is a clear indication that the Fed is throwing its full weight at confronting the economic fallout from the coronavirus, which poses a severe threat as factories shut down, people lose jobs and the economy grinds to a halt."

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