Sunday, November 16, 2014

Lender Does Not Plan to Relax Mortgage Credit Standards

Bank of America Credit StandardsAs policymakers signal a desire to open up the mortgage credit box to include more borrowers, Bank of America's CEO says the bank isn't likely to loosen its standards any time soon.
Speaking at an investor conference in New York, Bank of America CEO Brian Moynihan said his firm—frequently listed among the top five mortgage lenders in the nation—has little incentive "to try to create more mortgage availability where the customers are susceptible to default."
Moynihan's comments run against one of the most common complaints about the mortgage market today, which is that over-tight lending standards have cut too many potential homebuyers out of the picture.
The issue is a commonly cited problem for younger first-time homebuyers, who, in addition to facing tight mortgage criteria, also have to clear the hurdle of saving for a down payment.
Despite this, Moynihan said his bank has no intention of opening up low down payment options, instead suggesting those consumers should consider renting a home instead of buying.
As part of the government's effort to boost homeownership, both Fannie Mae and Freddie Mac have taken steps to make lenders more comfortable expanding their offerings. In October, Mel Watt, the director of the Federal Housing Finance Agency (FHFA), announced that the GSEs were working on developing guidelines for mortgages with loan-to-value ratios between 95 and 97 percent, allowing for down payments as low as 3 percent.
FHFA is also working with the enterprises to clarify their representation and warranty framework as a way to reduce lenders' concerns about buyback risk.
While those efforts may appease some who insist tight credit is holding back the housing market, Moynihan—whose bank has paid tens of billions of dollars in recent years to settle mortgage-related claims, many of which stemmed from its acquisition of Countrywide Financial—said his thinking takes a longer view.
"I know that that doesn't sound good for an instant housing recovery and faster housing markets, but it's actually good, because in the long term it keeps housing more fundamentally based," he said.

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