Raising the bar on mortgages

Marketplace Staff Dec 4, 2009
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Raising the bar on mortgages

Marketplace Staff Dec 4, 2009
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TESS VIGELAND: Given everything that’s happened in the housing market over the last year or two, you’d think buyers — and lenders — would be a little more cautious about affordability. But the Federal Housing Authority has been backing mortgages with 3 percent down payments given to people with lower credit scores than many lenders required. Whaaaaa?

Well this week, after revealing that its almost tapped out its reserves, the FHA says it will raise requirements on both the down payment and credit scores. That may very well slow down the meager recovery in housing, because fewer home buyers will qualify for a mortgage.

But Chris Thornberg of Beacon Economics says the FHA shouldn’t be in the business of artificially propping up prices.

Chris Thornberg: Does it mean the housing market’s going to tumble a little more? Hopefully yes. Remember, we can always rely on the pricing mechanism. If you can’t buy a house today without a subsidy from Uncle Sam, well there’s a reaction to that, and the reaction is home prices will fall until people can buy them.

Meanwhile the Treasury Department put more pressure on banks and other lenders this week to modify mortgages of homeowners who are in danger of foreclosing. The government says it will issue fines to lenders who aren’t helping borrowers permanently reduce the amount owed on their mortgages.

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