A Return to Subprime? HUD Secretary Says Lending Too Tight

In his first major policy speech since joining HUD in July, housing secretary Julian Castro on Sept. 16 urged bankers to ease mortgage lending and make it easier for home buyers to qualify for a mortgage.

“The truth is that the dream of homeownership is out of reach for too many Americans,” said Castro in Washington, D.C, addressing a crowd at the Bipartisan Policy Center’s housing summit. “This has to change. Some believe it was too easy to  get a home loan. Today it’s too hard. The pendulum has swung too far in the other direction.”

Castro said lending standards have become too tight. He said he wants to boost home ownership for all Americans, not just those with stellar credit.

“We must do all we can to get capital flowing again,” he said. “Currently, there are 13 million people with credit scores ranging from 580 to 680. Many of them are ready to own, but are being left out in the cold.”

In recent months, some lenders, home builders and real-estate brokers have called on the FHA to lower the premiums it charges to insure loans, which would result in lower mortgage payments for some low-income home buyers. Castro addressed those fears too.

“In the wake of the crisis, we’ve seen a lot of frustration from lenders when it comes to their FHA business,” he said. “Many have been reluctant to lend because they fear unanticipated consequences. They need to be able to manage their risk  better — and so does FHA. So we’re making it easier to partner with us by overhauling our “Single Family Handbook.”

The FHA had raised its fees as expected losses on crisis-era loans  piled up, requiring a cash infusion from the U.S. Treasury. The FHA is in the  midst of clarifying rules on what problems would trigger penalties and when those penalties can be found, which it hopes will allay banks’ fears.

“By clarifying the compliance process, we’re giving lenders the confidence they need to lend, while protecting our financial health,” Castro  said.

Could this be a return to subprime lending for borrowers with dicey credit scores?

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