Tight credit won't slam home values

Rising defaults and foreclosures and an oversupply of homes are more likely to stunt a real-estate recovery than tighter mortgage standards, lenders say.

"I think improvement [in the real-estate market] can occur while standards are still this tight," says Brian Kludt, a senior mortgage planner at Waterstone Mortgage in suburban Milwaukee. "Standards are one of a plethora of factors impacting the housing market."

Fannie Mae, a government-sponsored enterprise and the largest purchaser of loans, has implemented new guidelines that add fees and tighten requirements, placing more scrutiny on credit history, property type and down-payment size.

They're intended to stabilize home prices and stem mortgage-related write-downs at banks.

The goal is to sustain ownership of houses, says Marianne Sullivan, a Fannie Mae senior vice president. The guidelines make it more likely buyers will maintain payments even if there is further pressure on home prices, she adds.

Brian Brady, a managing director at World Wide Credit and author of MortgageRatesReport.com, says any time standards are tightened, there may be a brief period of further weakening in housing.

As underwriters adjust to the guidelines, they're a bit overcautious, Brady says.

With delinquencies and defaults still rising — especially for mortgages given to customers with poor credit — prime mortgages following Fannie Mae and Freddie Mac guidelines have surged in popularity.

Securities backed by Fannie- and Freddie-approved mortgages, known as agency bonds, accounted for nearly 97 percent of mortgage securities in February, according to the Securities Industry and Financial Markets Association.

A year earlier, they accounted for 56 percent. The increase indicates there's still an appetite for mortgages seen as less risky.