Saturday, January 30, 2010

Get ready for even tougher documentation on loans ?

In 2009, Freddie and Fannie spent a lot of time idenfying bad loans. They are digging in and forcing banks to buy back bad loans that had some type of incorrect or incomplete documentation. As defaults on sub-prime loans have begun to improve, defaults on conventional loans has risen. Since most conventional loans are resold to Freddie and Fannie, they are seeing the biggest problem. As these loans get pushed back to banks, there will be repercussions into the documentation from borrowers. Fortunately, the bad loans tend to be from 2007 and 2008, before most documentation standards were raised. So, there probably will be additional increases in documentation required, but we may have seen most of the requirements already.

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