The National Association of Realtors (NAR) has zeroed in on the secondary mortgage market, calling for reforms to what it sees as a major contributor to a sustained housing recovery.
In testimony before the House Financial Services Subcommittee on Capital Markets and Government-Sponsored Enterprises, Tom Salomone, NAR’s 2012 director of party activities, emphasized transparency and strategy for the mortgage markets as they go forward, especially in light of expansive reform legislation proposed by New Jersey Republican Scott Garrett.
“As the leading advocate for homeownership, NAR agrees with Rep. Garrett that greater transparency is needed in the trading of mortgage backed securities,” Salomone said. “However, to restore confidence in the market and ensure that the housing finance system works more efficiently and effectively in the future, this proposed legislation must be coupled with a comprehensive strategy for reforming the secondary mortgage market.”
That strategy, Salomone said, would primarily involve private capital, but he did not completely rule out a government presence in housing. In the post-bubble economy, GSEs have been guaranteeing 9 out of every 10 new home loans, and many parties – the government included – have been taking steps to correct the imbalance. That said, Salomone did say in his testimony that without a government presence, the end result could be just as lopsided (and far more costly).
“Realtors agree that a properly functioning housing finance market requires reducing the government’s participation and increasing private capital, but full privatization is not an effective option,” he said. “Without some continued involvement by the federal government we risk losing affordable long-term, fixed-rate mortgage products. This would be devastating to middle-class home buyers and the housing market.”
Salomone did, however, mention an oft-repeated NAR point – that “private lenders have retreated from the marketplace” and restricted lending. We’ve previously addressed this, both in the magazine and on our website, but a new article by ChicagoNow’s Gary Lucido adds further perspective to the debate.
In the article, “Is it Really Harder to Get a Mortgage Now?”, Lucido cites a study that DBRS, a credit rating agency, conducted in June on underwriting guidelines since 2007, when the housing market first began to show signs of a slowdown. Some of the highlights that Lucido spotlighted included;
- The maximum loan to value ratio has gone from 100 percent to 80 percent
- The maximum debt to income ratio has gone from 38 percent to 33 percent
- The minimum credit score has gone from 620 to 680
- Borrower is no longer allowed if they don’t have a credit score
- Required reserves has gone from 2 months to 12 months
- Employment must now be verified within 10 days of closing vs. 30 days previously
- 2 years of W2s must now be provided instead of just 1 year previously
“It’s definitely harder to get a mortgage than it was during the real estate bubble,” Lucido writes. “However, in reality these mortgage lending standards are pretty reasonable and no different than they were before things got crazy. We’re just back to the old normal.”
So again, today’s lending environment seems so trying not because it is overly difficult, but because lending during the boom years was so fantastical.