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Home | News | Government | Fannie Mae’s CEO Lauds ‘New Realism’ of Better Underwriting
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Fannie Mae’s CEO Lauds ‘New Realism’ of Better Underwriting

""Fannie Mae"":http://www.fanniemae.com is building the ""strongest book of business we've seen in the last decade,"" the GSE's president and CEO, Michael Williams, proclaimed to a group of industry professionals this week.

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While tighter underwriting standards may mean fewer consumers are able to get loans and banks are holding credit close to their chests, Williams says the type of prudent lending that has taken hold in the aftermath of the housing bust is translating into higher quality, more sustainable loans for Fannie Mae.

Speaking at a ""Women in Housing and Finance"":http://www.whfdc.org luncheon in Washington, D.C. Wednesday, Williams attributed the improving loan quality to the GSE’s emphasis on safer products, especially long-term, fixed-rate loans; better borrower documentation; and more accurate property appraisals.

“By adopting these standards, we have begun to build a new book of business with some of the highest-quality loans we have ever seen,” Williams said.

He pointed to several specific loan characteristics that support his assertion. Credit scores for new borrowers are now averaging about 760, which FICO rates as “top tier.”

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Over 90 percent of Fannie Mae’s new borrowers have what Williams called “plain, old-school mortgages,” meaning long-term, fixed-rate loans. The number of subprime loans making their way to the GSE’s new book of business is zero.

In addition, loan-to-value ratios, on average, are nearly 70 percent. Williams says in a market where many homeowners have limited or no equity, 30 percent equity “is quite strong.”

“I believe that we are seeing across the U.S. housing market â€" from borrowers, lenders, and everyone with a stake in the future â€" what I would call a ‘new realism,’” Williams said. “Step-by-step, we are putting in place a new foundation for our industry. It’s a foundation based on the right lending standards and on a broad reexamination of what constitutes sensible risk.”

According to Williams, building a strong foundation is more important now than perhaps ever before. He cited a recent report from Harvard University’s ""Joint Center for Housing Studies"":http://www.jchs.harvard.edu, in which analysts project the number of households in America to grow by 1.25 million to 1.5 million each year over the next decade. If the forecast holds up, this rate of growth in household formation would outpace the last five years, when the number of new households expanded by less than 1 million per year.

“We need to make sure that we are preparing the housing market for this spike,” Williams said. “We need to make sure that we’ve learned from the lessons of the past â€" and that we’re building a system that prevents housing bubbles and busts.”

He contends that practical and sensible lending, and prudent underwriting practices, are the key to a bubble- and bust-free market going forward.

“As an industry, we can’t just put people into homes,” Williams said. “We have to make sure they can keep their homes. Otherwise everyone suffers â€" the borrower, the mortgage industry, the financial system, and the economy.”

About Author: Carrie Bay

Avatar of Carrie Bay
Carrie Bay is a freelance writer for DS News and its sister publication MReport. She served as online editor for DSNews.com from 2008 through 2011. Prior to joining DS News and the Five Star organization, she managed public relations, marketing, and media relations initiatives for several B2B companies in the financial services, technology, and telecommunications industries. She also wrote for retail and nonprofit organizations upon graduating from Texas A&M University with degrees in journalism and English.

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