Yes, the mortgage lending standards have become very strict, but there is proof that they are working! The Quarter 2 2010 losses are the lowest they have been since the government took over Fannie Mae in 2008.
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The Washington Post featured an article that Fannie Mae “reported Thursday that its loss in the second quarter shrank dramatically and that the company had put away enough money to cover most of the losses it expects in the future.” Fannie Mae gives several reasons as to why their losses are improving:
Numbers 1 and 2 above seem to be more indications about the overall economy improving but #3 (virtually all losses from bad loans originated 05-08) and #4 (very few defaults since 09) seem to indicate that there has been a correction in lending standards that ARE working! |
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I had a Realtor tell me that a family with documentable income of $35,000 per year was given a mortgage for a $1 million dollar property that she sold short last year. Clearly, mistakes were being made across the board with lending standards being too relaxed.
Now the corrections have been made, and with some back-burner discussions about the ultimate fate of Fannie Mae and Freddie Mac I’m sure we’ll be seeing more changes coming down the pipeline. While the changes make a Loan Officer’s job much harder and also puts an extra strain on borrowers (additional income verification, having to document almost every non-work related deposit, not open new lines of credit or make any significant purchases in-between application and closing... etc) – it all appears to be working!
I am an optimist, so one could argue that 2009 until now is not long enough to know for sure if we are out of the woods, but I’m going to say that there is clear evidence we are just about there.
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