Fitch Ratings thinks that the Federal Housing Finance Agency’s (FHFA) plans to clarify the rules on putback requests might be positive for the U.S. housing market if it leads to lending beyond the “pristine” borrower profile.
Earlier this week, the agency stated that it be clarifying its positions on what triggers a loan repurchase request.
The rating agency said this morning that the FHFA’s move will improve the U.S. mortgage market since one of the main hindrances to its recovery is the lack of available credit to borrowers with slightly more leverage and lower credit scores.
After the economic crisis, lenders have made their guidelines stricter and targeted their interest more toward the highest-quality borrowers, particularly those who appear to have low default and repurchase risk.
In fact, Fitch said that one of the main concerns that drive lender decisions is the possible liability from repurchase demands from the GSEs and other investors.
Since these originators are still trying to recover from a significant inventory of repurchase demands and related litigation after the crisis, they chose to tighten their criteria. However, this cautious approach has also led to much less mortgage credit availability and has put a toll on the housing recovery.
Analysts predict that the clarification on potential repurchase demands and related liability may mitigate lenders’ concerns, and in turn, improve credit availability. By establishing well-defined repurchase standards, developing reporting and enforcement mechanisms, and creating distinct timelines that govern the process, Fitch believes that FHFA is making positive steps the benefit both lenders and investors.