From the WSJ:
Some of the largest U.S. mortgage lenders are preparing to further ease standards for borrowers after the release of new guidelines this month from mortgage giants Fannie Mae and Freddie Mac .
The new guidelines, to take full effect Dec. 1, resulted from an agreement in October meant to clarify when lenders would be penalized for making mistakes on mortgages they sell to Fannie and Freddie. Lenders have blamed the lack of clarity for tight credit conditions that have made it difficult for many consumers to qualify for a mortgage.
Relaxing the lending standards potentially could make it possible for hundreds of thousands of additional consumers to get mortgages.
Laurie Goodman, director of the Housing Finance Policy Center at the Urban Institute, said the moves are “going to be big,” but she added that “it’s going to take time” to see the full impact of the changes.
The Urban Institute, a Washington think tank, earlier this year estimated that as many as 1.2 million additional home loans would be made annually if mortgage availability were at “normal” levels.
Some lenders, including Wells Fargo & Co. and SunTrust Banks Inc., said borrowers should begin to see initial changes in a few weeks, including faster turnaround times for mortgage applications to be processed.
Lenders also are expected to widen the scope of the types of borrowers they will accept by reducing credit-score requirements and giving greater leeway to consumers whose credit history suffered because of one-time events, such as a job loss or big medical bill.
In many cases, they required borrowers to have substantially higher credit scores and put in place other measures—so-called credit overlays—that were more stringent than what Fannie and Freddie required.
With the new agreement, “I’ve been told with absolute confidence that some lenders are lifting almost all of their overlays,” said David Stevens, president of the Mortgage Bankers Association.
Before the new rules were put in place, Mason-McDuffie Mortgage Corp. in San Ramon, Calif., typically wouldn’t make a loan to a borrower with a credit score below 660, said Bill Godfrey, the company’s executive vice president of capital markets. Now, he said he believes the company will lend down to 620, the limit for loans backed by Fannie and Freddie.
“We will be able to be looser and open up the net wider,” said Mr. Godfrey.