Wells Fargo & Co (WFC), JPMorgan Chase & Co. (JPM), U.S. Bancorp (USB): Will Easier Mortgages for Retirees Backfire?

The same threat exists with the new retiree mortgage rules. By spreading out retirement assets over a 30-year period, the agencies assume that retirees will be prudent in spending down that money. Yet especially for those with more modest retirement-account balances, unforeseen circumstances often make them spend down their savings much more quickly than the assumed 30 years.

In addition, while a 30% haircut might seem large enough for conservative retirement portfolios, regulators clearly have too short a memory to recall the market meltdown of 2008 and 2009, during which the S&P 500 plunged well over 50%. Admittedly, retirement portfolios shouldn’t be invested entirely in stocks, but the rule doesn’t appear to mandate that retiree-borrowers follow any specific investment strategy.

Finally, with the agencies allowing these loans, lenders will have every incentive to make these loans, knowing they can then resell them to the agencies. Already, rising rates have led to fears of declines in refinancing volume at Wells Fargo & Co (NYSE:WFC), JPMorgan Chase & Co. (NYSE:JPM), and U.S. Bancorp (NYSE:USB) , as well as a number of smaller lenders across the nation. Without addressing the moral hazard involved in these loans, new rules from Fannie and Freddie could easily do more harm than good to retirees.

How to handle housing in retirement
With proper protections, Fannie and Freddie’s rules could make a big positive difference in the lives of many retirees. But as written, the rules appear to be too simplistic to address some of the potential difficulties that could arise. After years of strife, the last thing that the housing market needs is another crisis centered on the most financially vulnerable homeowners in the nation.

Tune in every Monday and Wednesday for Dan’s columns on retirement, investing, and personal finance. You can follow him on Twitter @DanCaplinger.

The article Will Easier Mortgages for Retirees Backfire? originally appeared on Fool.com.

Fool contributor Dan Caplinger owns warrants on Wells Fargo & Co (NYSE:WFC) JPMorgan Chase & Co. (NYSE:JPM). The Motley Fool recommends Wells Fargo. The Motley Fool owns shares of JPMorgan Chase & Co. (NYSE:JPM) Wells Fargo & Co (NYSE:WFC).

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