After getting their hand slapped in the wake of the financial crisis, banks will be less likely to issue out loans, potentially slowing the recovery in the housing sector and homebuilder exchange traded funds, even as the government pushes to increase mortgage and financing for low-income Americans.
Late August, the Federal Housing Finance Agency, which oversees Fannie Mae (NYSE: FNMA) and Freddie Mac (NYSE: FMCC), proposed plans to make it easier for low-income Americans to take out mortgages and refinance home loans, writes John Carney for the Wall Street Journal.
The FHFA proposed that loan financing for single-family-home buying by low-income families would make up 23% of total mortgage purchases from Fannie and Freddie while low-income family refinancing would increase to 27% from 20%. Regulators are also want the companies to raise the share purchases of mortgages in low-income areas with a large minority population.
While the proposals should bolster loans and reinforce a rebounding housing market, along with related homebuilder sector stocks and ETFs, like the SPDR S&P Homebuilders ETF (NYSEArca: XHB) and iShares U.S. Home Construction ETF (NYSEArca: ITB), other banks may be less willing to adopt the practices this time around. [Homebuilder ETFs Stall At The Foundation]
Specifically, lenders are reluctant to take on loans that could turn sour again and have less incentive to do so as the government has made clear that taking on riskier debt will open banks up to liability for faulty underwriting. Many have also blamed Fannie’s and Freddie’s prior policies for expanding mortgage access to borrowers with questionable credit worthiness as the catalyst for the financial crisis.