WASHINGTON -(Dow Jones)- Fannie Mae (FNMA) Chief Executive Michael J. Williams suggested that the company's new, tougher lending standards are here to stay.
In a speech in Washington Wednesday, Williams trumpeted Fannie's stronger book of business and described a "new realism" in the U.S. housing market in which it takes longer to get a mortgage loan and a smaller share of people are able to become homeowners.
"A solid majority of renters assume it will be tougher for their kids to buy a home--and they're right, too," he said at a luncheon hosted by the organization Women in Housing and Finance, citing the results of Fannie's national poll of Americans' views on housing and homeownership.
"Across the board, we see a much deeper understanding of how credit, income, job security and a down payment could stand in the way of buying a home," he said.
This change in attitudes is "healthy", Williams continued, because it will put the U.S. housing market on a path to recovery and result in the right mix of owners and renters.
"Step-by-step, we are putting in place a new foundation for our industry," he said. "It's a foundation based on the right lending standards and on a broad re-examination of what constitutes sensible risk."
In addition, Williams said Fannie Mae was preparing for sweeping changes as policy makers begin discussions on revamping the government's role in housing finance.
"We feel confident that we are taking the steps necessary to prepare for all outcomes and put the company on the right track," he said, adding that he wouldn't comment on the discussions.
Fannie Mae and its sibling Freddie Mac (FMCC) were seized by the government in 2008 when they appeared to be hurtling toward collapse. The companies don't make mortgage loans; they purchase or guarantee mortgages made by lenders in exchange for a fee, allowing lenders to make fresh loans.
Fannie and Freddie have had unprecedented power to set mortgage lending standards amid the financial crisis, after private-sector firms fled the secondary mortgage market en masse. The two government-run mortgage firms, along with the Federal Housing Administration, now back more than 90% of new U.S. mortgages.
Fannie's and Freddie's new tightened standards come against the backdrop of the huge government bailout of the companies. The government has pumped roughly $145 billion into the firms to keep them afloat, and the taxpayer tab is still likely to rise.
The firms' tighter standards, however, have provoked criticism from those who worry that they are causing too much business to be shifted toward the thinly-capitalized FHA. The government agency accounts for 25% of all mortgages today, up from 2% during the subprime boom.
Williams said Fannie's new book of business includes "some of the highest-quality loans we have ever seen." The loans, on average, have loan-to-value ratios of nearly 70%, Williams said. Average FICO scores are 760, compared with median FICO scores for the broader market of 712.
Meanwhile, more than 90% of borrowers in Fannie's new book have "plain, old-school mortgages--long-term, fixed-rate loans."
Williams argued the tougher standards don't mean Fannie has turned its back on its mission to provide liquidity to the housing market. Since the beginning of 2009, Fannie has backed roughly two out of every five new single-family mortgage that has been packaged and sold to investors, he said.
"Just by strengthening our lending standards, we've ensured that a large share of the market will be more safe and sound for many years to come," he said.