In a post on Fannie Mae’s Perspectives blog, Fannie Mae VP of Single-Family Risk Management Jude Landis discussed the strengths of the current mortgage market, boosted by advancements in technology, underwriting and quality control since 2008.
“Lenders have strengthened their mortgage origination processes, including improved underwriting and collateral assessment,” said Landis. “Additionally, appropriate regulations, such as the ability-to-repay and qualified mortgage rules, have formed guardrails for mortgage lending standards that did not exist 10 years ago.”
According to Landis, the safety of the mortgage market has been improved by changes in credit eligibility standards following the 2008 crisis. For example, Fannie Mae now no longer purchases newly originated low- or no-credit documentation, negatively amortizing, or interest-only single-family loans, nor single-family loans with prepayment penalties or balloon payment features, which Landis says fosters “sustainable homeownership while continuing to provide opportunities for creditworthy borrowers to obtain financing and become homeowners.”
Additionally, Landis notes the observed increase in loan-to-value ratios for new mortgages, tied to a majority of consumers obtaining loans to purchase homes rather than refinance. According to Fannie Mae, purchase loans made up 65 percent of the mortgages acquired by the GSE in Q2 2018, a high not seen since 2000.
Landis also discusses underwriting, noting that the current underwriting process has evolved into a healthier one for both borrowers and lenders, boosted by both new underwriting tools and higher quality loan data and risk assessment.
With all this in mind, Landis notes that we may better be prepared for the next crisis.
“In 2008, the mortgage and housing market experienced a disaster,” said Landis. In 2018, market players, including borrowers, are behaving in ways that are rational and in keeping with understandable cycles. In 2018, they also rely on more verified, accurate data than ever before. This trend will continue to gain steam, as will the tools available to analyze that data.
“These changes can't by themselves prevent another downturn in the housing market, which by its nature is cyclical,” Landis added. “But these changes have made the housing system far more resilient and better prepared for whenever the downturn comes.”