Mortgage Rules – Ever Changing

It seems that mortgage underwriting guidelines change as often as the weather in Houston, Texas and that’s a lot. Why the constant change in mortgage underwriting for conforming mortgages, jumbo mortgages, and super jumbo mortgages?

Two reasons, risk management and the plethora of redundant federal agencies that regulate the mortgage industry. Combine these two items with the current economic and political climate and you feel like you are on a mortgage roller-coaster when it comes to having your conforming mortgage, jumbo mortgage, or super jumbo mortgage underwritten.

First let’s address risk management with regards to mortgage underwriting guidelines. During the last decade mortgage underwriting guidelines were at the best lax and the worst almost non-existent. The liberal faction of congress was hell-bent on fulfilling their pipe-dream of home-ownership for everyone. Unfortunately not everyone was responsible enough to enjoy the privilege of home-ownership.

In order to accomplish this utopian policy congress not only allowed but encouraged Fannie-Mae and Freddie-Mac the two largest purchares of mortgages in the world to relax their mortgage underwriting guidelines. These mortgage guidelines are put in place to control risk. When you diminish them you consequently take on more risk. Wall Street then took it’s cue from congress and had an inexhaustible appetite for mortgage-backed securities. The more they purchased the more risk was taken until we had the mortgage implosion of 2007-2008.

With the billions of dollars of losses on mortgages everyone – banks, investors, and even congress realized that we needed to come back to reality and bring back mortgage guidelines to reduce risk and only make mortgages for those people that have demonstrated they are responsible enough to enjoy the privilege of home-ownership.

The problem for banks is that they have to find the balance between being to lax in mortgage uunderwriting which caused the mortgage collapse and not being too restrictive in mortgage uunderwriting so that everyone that is responsible can obtain a mortgage. Since they were on one-side of the pendulum just a few years ago the knee-jerk reaction was to become as restrictive as possible in order to get a handle on their mortgage portfolios. They had to figure out which mortgages would perform satisfactorily without killing off the housing market totally.

Since then banks have had time to do their analysis and have been able to ease mortgage underwriting guidelines or rules for obtaining a mortgage to a place somewhere to the conservative side of making mortgage available to as many responsible people as possible while making sure these mortgage perform and don’t go into default.

In the begining I said there were two reasons that mortgage rules were ever changing and the second is the amount of redundant government agencies that regulate conforming mortgage, jumbo mortgages, and super jumbo mortgage

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