It's all over google, yahoo and other search engines. Banks are
loosening up lending and that will make getting a mortgage easier.
Pundits are stating the doors are now opening up for individuals who
otherwise would be denied a loan.
But, after the
housing crash and the accusations of mortgage misdeeds - demanding that
lenders know who they are lending money to - how could this occur?
In
actuality, it really is about the documentation. Not the standards of
underwriting such as credit scores, how long you're employed or how much
you're trying to borrow.
Lenders have gotten into
lawsuits with each other and with national agencies such as HUD, Fannie
Mae and Freddie Mac demanding what is called a "put back". A "put
back", in mortgage parlance, is when a national agency like HUD or a
lender who bought a loan from another lender "puts the loan back" to the
original lender.
Say you went to a bank and got a
mortgage. Your loan probably was sold once or more times since you
received the initial loan. That's normal in the industry - it keeps the
cash flowing for more borrowers to get more loans.
But,
lets' say you miss one or two payments. You had severe medical bills,
you were out of the country, whatever the reason - it is not important.
What happens? As far as you're concerned, you get late payments (which
you do not want) on your credit reported on your mortgage payment
history.
However, behind the scenes, the action
unfolds. Someone somewhere is tasked with going through your loan and
looking at every single document that you provided and that you
signed. The intention is to determine one of four things: 1. You
signed something incorrectly (a mistake by your original lender) with
the wrong date or the wrong information on the disclosure. 2. You lied
and are a fraud. 3. The Underwriter made a mistake and improperly
underwrote your loan to the proper guidelines. Or 4. There is some
paper that has some error or something missing.
The
employee who finds this gets a big slap on the back and the company then
sends a demand letter to the bank that originally gave you the loan
saying "We're sending the loan back to you ("put back") and you need to
wire us the money for the loan ASAP or we are going to sue you"
For cases like egregious underwriting errors or fraud, this is common practice
But,
this practice was abused by many major banks who kicked loans back and
forth to one another and abused by agencies who did not want to insure
loans to banks. They looked for simple, tiny, errors that they could
use as an excuse to trigger the "put back" or "buy back" clause
After
much discussion in Washington, there was an agreement that limits this
practice. Because, typically, if an Agency like HUD, Fannie, Freddie or
the VA refuse to insure a loan -you can bet that every bank between San
Fran and Miami start kicking the loan back and putting it back -
because none of them want an uninsured loan.
So, the
agencies have come to an agreement to limit the demands to egregious
issues and not to smaller items that do not materially change the
fundamental quality of the original loans.
This does not translate to easing of credit.
This translates to less lawsuits from "put backs"
After
all, if the government is going to legislate to a lender that they can
only lend you what you can afford - (google "ability to repay") - do not
thing for one second that they just loosened lending up like it was
2002 all over again
