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“There have been almost no defaults on mortgages originated in the past five years.” Goodman, co-director of housing finance policy at Urban Institute, said “Our analysis suggests that given this environment of meticulous underwriting, borrowers with lower credit scores may well perform better than their counterparts performed in the past,” Goodman concludes. “Put simply, it’s time to lend again to borrowers with less-than-perfect credit.” GSE Risk Transfer Goodman said the federal government’s mortgage credit risk has been greatly reduced because the government has slowly transferred credit risk from the GSEs to private mortgage bond investors. In 2012, she said, the Federal Housing Finance Agency, the administrator of Fannie Mae and Freddie Mac, launched the Credit Risk Transfer program, transferring mortgage risk to private investors. Fannie and Freddie don’t make loans; they insure them. They buy loans from lenders, wrap them into mortgage- backed securities and guarantee to make investors whole if the mortgages default. “The GSEs have transferred 90 percent of the risk to the private sector,” said Goodman, citing the Urban Institute’s “ Housing Finance At a Glance ” report. “This is the GSEs answer to reducing taxpayer exposure. Fannie Mae has transferred $622 billion, while Freddie
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A near-zero default environment is clear evidence that we need to open up the credit box and lend to borrowers with less-than-perfect credit.” Laurie Goodman | Co-director of housing finance policy, Urban Institute
Mac has moved $543 billion in credit risk to the private sector.”
establishment, the new nonbank lenders avoid regulatory scrutiny generally applied to big banks. Christopher Whalen, a senior managing director at Kroll Bond Rating Agency , said since the financial crisis of 2008 and the passage of Dodd-Frank in 2010, the mortgage industry has changed drastically. Whalen said higher capital
Today, nonbank mortgage lenders such Quicken Loans, PHH Mortgage and loanDepot.com accounted for 63 percent of home-purchase loans backed by the FHA, according to the American Enterprise Institute’s International Center on Housing Risk . Because they are outside the traditional banking
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