My mailbox today is stuffed with letters from borrowers encountering a problem that did not exist before 2007: They are being barred from the conventional (non-FHA) market by underwriting rules that have become increasingly detailed and rigid. In many cases the rules leave no room for discretion by the loan originator, and where there is discretion, originators are often too frightened to use it because of the heightened risk of having to buy back the mortgage or incur other penalties. Fannie Mae and Freddie Mac are the major source of the problems, but the large wholesale lenders who acquire loans from thousands of small lenders and mortgage brokers have their own rules, which in many cases are even more restrictive than those of the agencies. Before the financial crisis, comp...
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