Real Estate NewsMortgage Insurance Minimum Lets Lenders Qualify More Consumers
Freddie Mac"s recently announced reductions in mortgage insurance coverage requirements enables lenders to qualify more borrowers, said its chairman and
chief executive, Leland Brendsel.
Speaking at the Regional Conference of Mortgage Bankers Associations in
Atlantic City, Brendsel explained the changes were possible because of the
use of automated underwriting, combined with new forms of risk sharing.
Neither of the two announced coverage options are intended to replace
traditional default protection, but do offer lenders the ability to provide
alternatives to borrowers.
Providing lenders with these alternatives is consistent with the mission of
Freddie Mac to provide a reduced cost of homeownership to consumers, he said.
Brendsel said the mortgage industry has been flexible in adopting changes that
are beneficial to consumers.
Automated underwriting in general allows Freddie Mac to understand risk better
and thus distinguish between borrower risks that were once thought to be alike.
More than half of mortgage lenders use automated underwriting. The use of Loan
Prospector quadrupled in 1998, with more than 2 million loans. Almost 40% of
Freddie Mac"s business came through automated underwriting, Brendsel said.
Eventually automated underwriting will be used to make 90% of Freddie Mac"s
loan purchase decisions. Brendsel sees the use of automated underwriting as
allowing Freddie Mac to expand the type of products the company will purchase.
With the further development of automated underwriting tools, the sharp
differences in varying market segments (in terms of credit quality) will
disappear. Instead of credit grades, mortgage lending will take place in a
continuum, he said.
Brendsel also spoke about the events of last fall, when the conforming loan
market emerged unscathed from the turmoil that affected other segments of the
business.
Not only did Freddie Mac provide stability, it also helped lower costs for
homebuyers. He noted that he has experienced many cycles in the home lending
industry and the ability to maintain a steady supply of capital is improved
through each cycle.
This is because of developments in the secondary market.
As for the future, Brendsel said he sees an era where affordable mortgage
credit is available to all borrowers.
This will be done by lenders creating customized solutions for borrowers,
rather than today"s "one size fits all" loan.