Subprime Lending News 8/4/17:

Mortgage lenders loosen standards, and JPMorgan Chase sued by investors.

By Caroline Thompson

Today’s subprime lending news includes lots of mortgage industry updates and yet another banking scandal to lead you into the weekend.

FHFA Director wants to boost African American homeownership rates.

Melin L. Watt, director of the Federal Housing Finance Agency, said in a speech to the national Association of Real Estate Brokers that his agency is hard at work on a five-year plan to boost African American homeownership rates. Watt said they hope to see two million new Black homeowners by 2022. African American homeownership rates peaked in 2004, at almost 50 percent. But today, it’s back down to levels last seen in the ’90s, at 42 percent, a downturn that Watts attributes to the foreclosure crisis of the late 2000s, gentrification, and the decline in marriage rates in young people. Watts says his agency is working to address the roadblocks many would-be Black homeowners might face in purchasing a home by lowering the down payment requirement to 3 percent, looking into an alternative credit score model and lowering guarantee fees.

JPMorgan Chase sued for obscuring an investigation into a loan sold to investors.

Drug testing lab Millennium Health, LLC used JPMorgan Chase to sell investors a $1.8 billion loan, but neither the lab nor the bank disclosed the fact to the buyers that Millennium was under investigation for fraudulent billing practices. According to an American Banker article, “JPMorgan, which was an agent on the loan, ‘failed to notify’ investors about the problems, according to the complaint. When the investors found out in May, the loan’s value started dropping. It tumbled to just over half of face value by June as investors grappled with what the disputes would mean for a company that received much of its revenue from the government.”

California mortgage industry moves to lesson home lending standards.

Amid soaring home prices and the rising cost of living, it can be hard for the average person or family to become homeowners. These difficulties are especially pronounced in California’s biggest cities, like Los Angeles, where the median price of a home just hit $569,000. As a result of these high costs, mortgage companies are having problems finding qualified buyers. The California mortgage industry is looking to solve this problem by shedding some of the strict standards put in place after the subprime crisis. Fannie Mae and Freddie Mac are pushing new programs to encourage homeownership, reducing down payments and raising the debt-to-income ratio borrowers are allowed to take on from 45 to 50 percent. They have also eliminated student loan payments as counting towards a potential borrower’s debt-to-income ratio. While this is, on the surface, good news for potential homeowners, experts are wary of repeating the subprime lending bubble of the early 2000s.

We need to be careful not to be on a slippery slope where we go too far,” said David H. Stevens, president of the Mortgage Bankers Association. “As long as it’s done responsibly it’s a good thing.”

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