Counterparties: What’s holding back mortgage lending?
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Even with mortgage rates at record lows and the Fed’s recent $40 billion per month commitment to the market, mortgages aren’t terribly easy to get these days. Mitt Romney, for his part, blames confusion over “qualifying mortgages“. But the mortgage market is also being held back by the scourge of “put-backs”.
In the post-housing-bubble era, Nick Timiraos¬†reports, mortgage giants Fannie Mae and Freddie Mac have hired “bounty hunter” consultants to¬†apply a ridiculous amount of scrutiny to billions of solid loans from mortgage lenders. If these consultants find even small problems ‚Äď¬†like a stray deposit in a borrower’s bank account ‚Äď¬†Fannie and Freddie can force lenders to buy back loans:
“Why do I care about that $100 deposit? Why am I triple checking your credit score?” says Barry Sturner, president of Townstone Financial, a Chicago lender. “Because I’m scared to death of the buyback.”
Despite strong credit scores and an ample down payment, Paul Stone and his wife had problems getting a mortgage in March from Wells Fargo & Co. to buy a $300,000 house in Broomfield, Colo. He says the lender raised concerns about his income. Mr. Stone, a real-estate agent, has worked for the same company for the past 2¬Ĺ years and earns a fixed salary.
But he relocated to the Denver area from Virginia this year, and he says the bank wanted to see a two-year record of earnings in his new location. His wife eventually got a mortgage with Wells Fargo, using only her income, to buy the house.
If you already have a mortgage, things are weirdly sunnier.¬†Refinancing rates¬†have hit their highest level in more than three years. This recent data,¬†Matt Zeitlin¬†writes, is very good news: Not only are underwater homeowners refinancing but more people are actually paying their mortgages down early.
At the other end of the mortgage spectrum, there’s subprime, which, Bloomberg’s¬†Jody Shenn¬†reports, is a remarkably lucrative, shrinking market. Subprime mortgage bonds ‚Äď¬†basically bonds containing loans not backed by Fannie and Freddie ‚Äď¬†are up 30% so far this year, and¬†”have outperformed almost every other asset class”. Goldman and Cerberus are among the companies launching funds to buy these bonds.
Which isn’t to say there is a large supply of new subprime bonds.¬†Since 2008, only $3.5 billion of these subprime loans have been packaged into securities. For comparison’s sake, sales of bonds containing those safer, government-backed loans hit $1.2 trillion last year alone.¬†– Ryan McCarthy