Agency FICO Redline? - A Question to Ask

The US Treasury Department’s Christmas Eve announcement confirming massive new support for the Agencies had the following as the last sentence:

"Recent announcements on the tightening of underwriting standards by Fannie Mae, Freddie Mac, and the Federal Housing Administration, demonstrate a commitment to prudent housing finance policy that enables a transition to an environment where the private market is able to provide a larger source of mortgage finance."

I believe that this is a very mistaken assumption by Treasury. Take them at their word on this regarding the tightening of standards. I can confirm that all of the Agencies have “independently” (Every thing is coordinated in D.C.) announced that they are tightening standards. It is impossible to quantify that promise at this point. I believe there is some teeth to this.

However there is no connection to the actions by the Agencies and an increase in lending by the “private market”. That is not going to happen. Does Treasury really believe that Citi Bank and Wells Fargo are going to be making cheap mortgage loans to those who have just been ‘red lined’ by the new tighter standards? If private lenders are to be involved it will be on terms more stringent than those new standards being set by the Agencies. The pricing will be much higher as well. Bank of America will not be making sub-standard/mispriced mortgages any time soon.

If you take these two pieces together you would have to assume that as a consequence there will be a significant contraction in the availability of mortgage credit. Its impact should be being felt right about now. We will find out if this is a factor in two to three months when the backward looking housing numbers are released. I would like to know the answer to this question earlier.

I know that there are many out there who are involved with mortgages and real estate. In order to get a reasonable handle on this we need regional input. People who actually have their boots on this ground. So I ask these questions to people who might directly or indirectly know the answers:

Has there been a tightening of standards? Are mortgages more difficult to obtain in the last 30 days?

If the changing standards are in fact constraining mortgage availability the consequences would be significant. It would open a window into those housing numbers that are coming out in February. We all need an edge.

It would also be very interesting to hear that there was no change in availability or in lending standards. That would be an observation for Treasury and the Agencies to ponder. They read too.

This could be one of those “one hand clapping” things. Just an experiment. Blog economics.


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