Monday Morning Cup of Coffee: New lending standards could kickstart mortgages

Clarification to GSE guidelines could give lenders new confidence

Monday Morning Cup of Coffee is a quick look at the news coming across the HousingWire weekend desk, with more coverage to come on bigger issues.

New, easier lending guidelines from Fannie Mae andFreddie Mac go into effect today, and most mortgage lenders plan to take advantage of them, hoping to offset the long-term slowdown in mortgage activity.

The new standards offer clarification on when lenders can be penalized for making mistakes in the mortgage they sell to the government-sponsored enterprises.

Many lenders say the lack of clarity in requirements have made them tighten their own lending rules too much, making it harder for the average buyer to qualify for a home mortgage.

Laurie Goodman, director of the Housing Finance Policy Center at the Urban Institute, tells the Wall Street Journalthat the changes are “going to be big,” but that it will take time to assess the full impact of the changes.

Analysts say that this move could open the door for hundreds of thousands of new mortgages to be written, or as many as 1.2 million, according to an Urban Institute estimate which compared current standards to historical norms.

Mike Heid, president of Wells Fargo (WFC), the nation’s largest mortgage lender, said the industry would welcome this change.

“It’s providing greater certainty for all the parties so that you can lend more confidently and make the whole judgment process much easier and more clear cut,” Heid said. .

Heid said even though the changes officially start today, mortgage applicants should begin to see faster processing times, reduced credit score requirements, and greater leeway in a few weeks.

“We will be able to be looser and open up the net wider,”Mason-McDuffie Mortgage CEO Bill Godfrey, saying that they will be able to lend to borrowers with credit scores as low as 620 now.

Some lenders don’t expect to loosen credit standards, though, worrying about being on the hook later.

“Unless we are convinced that the rules are going to be permanent and there is not going to be a look back or a reach back in future times…we are simply going to stay on the sidelines,” U.S. Bancorp head Richard Davis said previously.

On Monday, we’ll see consumer spending for November, ahead of the official start to Christmas season. The self-reported consumer spending is a new behavioral economics measure is based on the individual reports of a random sample of American, and gives a clue to as to the direction of the overall economy. The focus is on consumer discretionary spending, including on basics such as gas purchases at the pump and more optional impulse purchases online or in stores. Excluded are routine spending, including the consumer’s monthly bills, and big purchase items such as automobiles and housing.

On Tuesday we’ll see construction spending for October. Construction spending unexpectedly declined in September on public outlays and somewhat on the private nonresidential component.

Private residential spending was a positive for the month. Construction spending declined 0.4% in September after a 0.5% decrease in August. September’s decrease was led by public outlays, which fell 1.3% after a 1.0% drop in August. Private nonresidential spending dipped 0.6%, following an easing of 0.3% the month before.

On a positive note, private residential construction spending rebounded 0.4%, following a decrease of 0.3% in August. And strength was in the new one-family component which advanced 1.1% in September, following a 1.2% gain the month before.

Everyone’s favorite, the Beige Book, comes out on Wednesday. Each Fed district bank compiles anecdotal evidence on economic conditions from each of the 12 Federal Reserve districts. This report on economic conditions is used at FOMC meetings, where the Fed sets interest rate policy.

These meetings occur roughly every six weeks and are the single most influential event for the markets.

If the Beige Book portrays an overheating economy or inflationary pressures, the Fed may be more inclined to raise interest rates in order to moderate the economic pace.

And on Friday we’ll see the all-important employment situation report for November. Nonfarm payroll employment advanced 214,000 in October after gaining 256,000 September and 203,000 in August, well below market expectations.

Net revisions for August and September were up 31,000. The median market forecast for October was for a 240,000 boost.

The unemployment rate dipped to 5.8% in October from 5.9% in September. Expectations were for 5.9%. The U-6 underemployment rate declined to 11.5% from 11.8% in September.

This rate is one of Fed Chair Janet Yellen’s favorite labor market indicators.
Going back to the payroll report, private payrolls grew 209,000 after advancing 244,000 in September. Average hourly earnings edged up 0.1% after no change in September. Average weekly hours ticked up to 34.6 hours versus 34.5 hours in September.

No banks failed the week ending Nov. 28, according to the Federal Deposit Insurance Corp.

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