New mortgage rules tighten credit requirements

May 3rd, 2013

President Obama announced his nomination for director of  the Federal Housing Finance Agency on May 1.

Despite the availability of FHA loans and other government-backed initiatives to encourage home buying among those with less than ideal credit, many experts agree that the strict credit standards in the United States will continue.

“I actually think credit is going to get tighter before it gets easier,” former Federal Housing Administration commissioner and current Mortgage Bankers Association CEO and President David Stevens told Bloomberg Businessweek.

The restrictions on mortgage applications are a result of the 2010 Dodd-Frank Act, which implements measures to prevent further mortgage abuses which ran rampant in the years leading up to the recession. These regulations are only now going into effect and will not be fully instituted until the end of 2013.

Another regulation included in the Dodd-Frank Act requires banks to maintain a financial stake in risky mortgages to prevent bankers from packaging these mortgages as secure investments.

It was also announced on May 1 that President Obama will nominate Rep. Mel Watt of North Carolina to serve as the head of the Federal Housing Finance Agency. Watt will lead the effort to keep Fannie Mae and Freddie Mac afloat. Republicans and Democrats alike have praised the choice and are urging a fast nomination process.

It remains unseen how Watt will approach the tightening of mortgage credit, which is expected to have a significant effect on the housing market.