“Loose mortgage terms are pushing home prices up. Underwriters need to tighten standards.”
A May 31, 2018 article by Paul Kupiec and Edward Pinto started with the above quote. Here are some highlights:
- Since mid-2012, real home prices have increased 28%.
- The root of the problem is declining underwriting standards.
- In April Freddie Mac announced an expansion of its 3% down-payment mortgage.
- Government agencies guarantee about 80% of all home-purchase mortgages, so their underwriting standards guide the market.
- New regulatory guidance allows delinquent taxes to be excluded when calculating credit scores.
- As many as 10 million families lost their homes to foreclosure during the recession, despite federal programs that modify mortgage payments to prevent foreclosure. Minorities were disproportionately affected.
- Mortgage underwriters need to tighten standards before it’s too late. Government sponsored enterprises should immediately require at least 5% down on 30 year conventional mortgages. They also should reinstitute a debt-to-income limit of 45% and stop guaranteeing loans on vacation and rental properties. They should also avoid high balance loans while limiting guarantees for most cash-out refinancing mortgages.
Paul Kupiec and Edward Pinto, Wall Street Journal, May 31, 2018.