Federal regulators are changing their tunes on tighter mortgage lending standards, fearing that constrictive rules could “snuff out” the housing recovery, reports The Wall Street Journal.
This week, Federal Housing Finance Agency Director Mel Watt made comments saying Fannie Mae and Freddie Mac should direct their focus toward making more credit available to homeowners—a reversal from previous directives to lessen their footprints in the mortgage market.
Six federal agencies, including the FHFA, are expected in the coming weeks to finalize rules for mortgages that are packaged into securities by private investors.
“Those rules largely abandon earlier proposals requiring larger down payments on mortgages in certain types of mortgage-backed securities,” WSJ notes.
The rules also represent a shift from previous initiatives that emerged in the wake of the 2008 crisis, which pushed to restrict the the flow of “easy money” that ruled the bubble.
Critics of easing mortgage lending rules now, however, worry that regulators could be paving the way for another boom and bust.
“Do not confuse weakening underwriting standards and underpricing risk with helping people or promoting market efficiency,” said former FHFA Director Ed DeMarco in a speech this week during a banking conference in Charlotte, North Carolina.
Written by Jason Oliva