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Considering the significant impact of Covid-19 in the world’s economy, including the housing markets, countries are now working relentlessly to ensure that their economies are back on their feet. The virus mostly hits the US, and it is still battling with it to date. Prices of properties in the United States have been significantly affected by this global pandemic, and something has to be done to return things to normal. It is on this basis that The Federal Housing Finance Agency has finally decided to validate and approve classic FICO for Freddie Mac and Fannie Mae. Such approval means that Fannie Mae and Freddie Mac can now use the classic FICO credit score model.
There’s a provision in the regulatory reform law S. 2155 that mandated evaluating a new credit score model. Therefore, the approval is constitutional.
With this approval, Fannie and Freddie are now allowed to continue providing every necessary support required by the mortgage market. It’ll also help to access other modern credit score models.
The question now is, how much does that decision weigh on the housing market? Will it be able to make a significant impact or not?
To answer this question, it is better first to understand the role of Fannie Mae and Freddie Mac in the housing market. When you hear Fannie Mae and Freddie Mac, they refer to two federally-backed home mortgage companies in the United States. The US Congress created these companies to serve a vast number of purposes in the US housing market. They buy and guarantee mortgages from lenders. They hold the purchased mortgages with them in their portfolio. They also transform the loan into mortgage-backed securities (MBS), which will then be sold to interested investors.
Fannie Mae and Freddie Mac play crucial roles in America’s housing finance system. Their primary goal is to provide stability and liquidity in the mortgage market. They also ensure that properties are well regulated and affordable. They provide liquidity to institutions that offer loans to finance housing. Such
institutions include mortgage companies and banks.
Now, you should begin to understand how the FHA’s decision to approve classic FICO for these two government-owned companies can affect the housing market.
Such a decision can help stabilize mortgage markets, especially at this time of global crisis. That is one of the significant reasons why Fannie Mae and Freddie Mac were introduced in the first place. They are there to provide the housing market the required protection for the housing market when the economy is threatened, as the country is witnessing today.
Furthermore, the decision will help ensure that there’s the availability of mortgage funds across the country. With such availability, investors and homebuyers will have enough money to get the property of their choice; thus, there’ll be enough money circulating in the property market.
By approving classic Fico for Freddie Mac and Fannie Mae, mortgage providers, especially banks, will have access to more funds that can be provided to mortgage lenders. Mortgage lenders will, in turn, be able to purchase their desired properties. With such a trend, the housing market will begin to thrive again, and it’ll eventually be able to stand firm again after a long period of a global pandemic.
References
https://www.investopedia.com/articles/economics/08/fanniemae-freddie-mac-credit-crisis.asp https://www.fhfa.gov/SupervisionRegulation/ FannieMaeandFreddieMac/Pages/About-Fannie-Mae--Freddie-Mac.aspx https://bankingjournal.aba.com/2020/11/fhfa-validatesclassic-fico-for-fannie-mae-freddie-mac/ fa.gov/mobile/Pages/public-affairs-detail. aspx?PageName=FHFA-Announces-Validation-of-ClassicFICO-for-Use-by-Fannie-Mae-and-Freddie-Mac.aspx
