The Federal Housing Finance Agency (FHFA) has announced additional measures to sustainably advance the affordability of homeownership for mortgage borrowers across the nation, especially for those in underserved communities.
“Expanding eligibility for low- and moderate-income families to refinance their mortgage and lower their monthly payments, together with leveraging desktop appraisals to reduce inefficiencies in the mortgage process, are meaningful steps towards overcoming barriers to affordable and sustainable homeownership," said FHFA Acting Director Sandra L. Thompson. “Today's actions demonstrate that FHFA will continue to act purposefully and in dialogue with its stakeholders to minimize market disruption and ensure its regulated entities operate in a safe and sound manner."
The first action Fannie Mae and Freddie Mac will roll out over the next few months seeks to expand certain eligibility requirements for their RefiNow and Refi Possible refi programs aimed at assisting low-income borrowers. Additionally, the GSEs will be incorporating desktop appraisals into their selling guides for new purchase loans.
“Our work stands on the twin pillars of good lending: sustainability and affordability. Each of these pillars is necessary for safe, sound, and effective financing, and each strengthens the other,” said Thompson. “After all, a loan that a borrower cannot afford is unsustainable: it will stop performing. And loan products, like some of those sold in the first decade of the 2000s that reset from low teaser rates up to unsustainable payment schedules, or contained no income documentation, cannot reasonably be called affordable.”
Malloy Evans, EVP and Head of Single-Family for Fannie Mae, said, “We introduced RefiNow earlier this year as an option for lower-income homeowners who often miss out on refinancing options to reduce their monthly mortgage payments and increase their potential monthly savings. The enhancements we announced today help expand the reach of RefiNow to additional creditworthy homeowners, further enabling equitable and sustainable access to homeownership.”
When the GSEs established their RefiNow and Refi Possible programs for low-income borrowers, area median income (AMI) requirements were limited to borrowers with current income at or below 80%. Today’s announcement expands the income threshold to include some moderate-income borrowers, with incomes at or below 100% of AMI. In addition, the GSEs are modifying other requirements to address certain operational frictions for lenders.
“This should be an urgent priority, as we are seeing significant numbers of lower income and minority Enterprise borrowers stuck in rates 30% to 60% higher than the current average,” said Thompson in her keynote address at the MBA Annual Conference. “There are even a surprising number of Enterprise borrowers who have been diligently paying the mortgages they received in the 2000s, but are still having to pay rates of more than 6%. To assist these borrowers in lowering their monthly payments, the Enterprises will remove the 10-year seasoning cap from the original program.”
Second, both GSEs will incorporate desktop appraisals into their Selling Guides for many new purchase loans starting in early 2022. The use of desktop appraisals by the GSEs was one of several temporary flexibilities initiated last year in response to the pandemic. This decision is the result of a thorough review of data collected from use of the loan flexibilities, as well as input received from the Request for Input (RFI) and public listening session on appraisal-related policies, practices, and processes.
“The housing market is always changing, and we need to ensure that our structures and systems grow and evolve with it by fully using all the appropriate tools and available information,” noted Thompson. “With desktop appraisals, an appraiser brings their valuation expertise to information that has already been made available to them, such as through listings. This can help each appraiser complete more loans in a day, and it can also help rural communities more readily obtain a necessary appraisal when the borrower is purchasing a property.”
In early September, the FHFA announced that the GSEs would be required to submit three-year plans for advancing fairness in housing finance. In addition to submitting plans identifying and addressing barriers to sustainable housing opportunities—complete with goals and steps—by year's end, FHFA also will require the GSEs to submit annual progress reports on actions undertaken during the prior year. The unification of multiple federal and regulating agencies to give historically disenfranchised communities a fair shot at homeownership and associated security and wealth.
“Last month, we proposed modifications to the buffer that will allow the rule to work as intended, with the leverage requirements and buffer serving as a credible backstop to the risk-based capital requirements that will keep the GSEs strong throughout even another event like the Great Recession,” said Thompson. “We recognize that, together, the Enterprises hold trillions of dollars of mortgage credit risk, so their ability to transfer some of this risk away from taxpayers and to private markets makes for a healthier housing finance system. In our continued review of the regulatory capital treatment of Credit Risk Transfers, we concluded that the rule was not providing sufficient capital relief for these transactions.”