Wells Fargo Chairman and CEO John Stumpf said banks are forced to raise their credit standards above those set by government entities to build in a buffer to protect against having to repurchase loans later.
It means that borrowers with tarnished credit records are having trouble getting loans to take advantage of the Federal Reserve's low-interest-rate policy that's intended to spur the economy. Even those without credit blemishes say the hurdles to get a mortgage have increased.
To protect themselves, Stumpf said lenders' credit standards are higher than those set by Fannie Mae, Freddie Mac and their overseer, the Federal Housing Finance Agency. So if Fannie wants a minimum score of 620, lenders might require at least 700.
"The reason we add something to it is because we are getting loans put back to us that we made five or 10 years ago for some, in many cases, esoteric or insignificant issues," Stumpf told Bloomberg TV this week. "That's not good for America. I'm in favor of good regulations, but some of it's inconsistent."
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One way to fix this or augment it, is to mandate that the banks have to hold some of these loans they make to people at the 620 credit score. After all, Fannie Mae wants 700 if they buy the loan from the bank. So make the banks hold onto the 620, 600 or 580 scores, if they want to take the risk, have them manage their own risk.
#LizBobeck
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