Academic journal article ABA Banking Journal

The Future of Residential Lending: Key Factors

Academic journal article ABA Banking Journal

The Future of Residential Lending: Key Factors

Article excerpt

THERE ARE TOO many key factors driving the future of real estate lending to list and describe on one page. But here are the few that BuckleySandler believes will be most important:

Managing repurchase risk/False Claims Act. Perhaps the most obvious factor will be the element of repurchase risk and, relatedly for loans insured or guaranteed by federal agencies, indemnification and False Claims Act risk. Since the financial crisis, lenders have been forced to repurchase and/or reimburse the government for billions of dollars of mortgages. The heavy price paid in connection with buybacks and related indemnity demands is fresh in lenders' minds and is a strong incentive to make only the highest quality loans going forward. Because repurchase risk is a driving factor of tightening credit, the industry's ability to inject more certainty and transparency into the repurchase process could be a major determinant of whether credit will be loosened.

The need for clarity and transparency is particularly acute with respect to FHA loans. A key factor for indemnification and False Claims Act risk will be the enforcement posture of the Justice Department and individual U.S. Attorney's Offices, which do not always appear to act in sync with housing policymakers' goals of making loans to underserved borrowers.

Future of Fannie Mae and Freddie Mac. Repurchase risk is so important because the secondary market drives origination activity--indeed, even portfolio-focused lenders want to know that market is liquid. But the future of the biggest players in that market, Fannie Mae and Freddie Mac, is now up in the air. How and when Congress addresses the future of Fannie Mae and Freddie Mac, now in their eighth year of conservatorship, will therefore dramatically affect the liquidity of the secondary market and, thereby, the future of real-estate lending. But what Congress will choose and when it will act are, frustratingly, impossible to predict with accuracy.

Will tight credit standards increase fair lending risk? And will the Supreme Court change the law of fair lending? …

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