This piece originally appeared in the April 2023 edition of MortgagePoint magazine, online now [1].
Malloy Evans serves as Fannie Mae’s EVP and Head of Single-Family, responsible for all facets of the company’s Single-Family Division, including leading the teams responsible for maintaining Fannie Mae’s single-family mortgage acquisition and servicing standards, providing liquidity to the single-family mortgage market, and facilitating equitable and sustainable access to homeownership and quality affordable rental housing across America.
Throughout his near-two decades with the government-sponsored enterprise (GSE), Evans has served in various roles, most recently as SVP and Single-Family Chief Credit Officer—responsible for first-line credit risk management from mortgage acquisition through disposition. He has also held other leadership roles overseeing risks across the Single-Family mortgage life cycle, including the credit, counterparty, operational, and reputational risks and performance of Fannie Mae’s Single-Family lenders and servicers, as well as the company’s administration of the Treasury Department’s Making Home Affordable (MHA) program.
He began his career with Fannie Mae as an attorney in the company’s legal department, serving as the principal counsel supporting the GSE’s implementation of government initiatives under the MHA program, and advising the business on the company’s multi-class securitization program. He has a Bachelor of Science in chemistry from Davidson College and a Juris Doctor from Washington and Lee University School of Law.
MortgagePoint Magazine had the opportunity to speak with Evans about the GSEs’ role in today’s mortgage marketplace, and the knowledge both Fannie Mae and the industry learned from past major events impacting the overall mortgage marketplace.
Q: How did you first get involved with Fannie Mae?
I started my career as an attorney, working with the law firm Hunton & Williams LLP in Washington, D.C. as a securitization associate. During my time at the firm, Fannie Mae was a client, and at the end of 2003, they needed assistance to get through end-of-year volumes. My first interaction with Fannie Mae was supporting the firm on securitization work. That turned into a permanent opportunity, and I officially joined Fannie Mae in April 2004.
Q: What was the state of the housing industry when you first joined Fannie Mae back in 2004?
There was a lot more private capital competing with the government-sponsored enterprises (GSEs) through a very robust private-label securities market. There also were different mortgage products being offered to consumers that are not really prevalent in today’s market, like Alt-A and subprime mortgages.
Q: Having experienced the mortgage meltdown of the subprime crisis of 2007/2008, what lessons have you taken from that period that can be applied to today’s housing market?
There are a couple ways to address that question. One is, when that event transpired, a large number of homeowners were impacted across the country—not only Fannie Mae homeowners, but across the broader housing ecosystem.
We wanted to help homeowners avoid foreclosure and learned we needed to reach them quickly and early in the process. If homeowners experienced a problem, it was critical to engage with them early in their delinquency, to ensure they were aware of their support options and the possibility of keeping their home. The longer a homeowner waits to seek help, the more likely they are to give up hope.
The second thing was to ensure borrowers had adequate options and make it easy for them to access those options. We undertook a wholesale restructuring of the loss mitigation solutions that were available, then created the infrastructure to deliver those solutions to those who needed them.
Lastly, it all comes down to basic information sharing. We learned that Fannie Mae could be a trusted resource for people in a time of need. For instance, we could contact a borrower’s servicer on their behalf to start a productive conversation about their options, removing their fear that the servicer only sought to collect payments. Also, publishing information from Fannie Mae was extremely helpful. At that time, we created our consumer-facing website, KnowYourOptions.com [2], so we could serve as a trusted source of information for struggling borrowers. We partnered with housing counselors and other types of advisors to provide additional support mechanisms, so borrowers could easily engage and receive the information and help needed.
There have been a lot of positive changes within the industry ecosystem, designed to enhance risk management across the entire loan life cycle. It has allowed lenders and investors to better manage through an economic downturn and also put borrowers in a better position for long-term success in their homeownership. For example, immediately following the crisis, there were updates to underwriting standards to support a mentality of long-term sustainability.
When you think about granting access to borrowers, you want to do it in a way that sets them up for success in homeownership, and over the long term. Letting people in the door just to let them in the door in the lead up to the 2008 crisis set people back generationally in their homeownership journey and their potential wealth building. We know that had a disproportionate impact on people of color, so it was important to shore up the system.
To that end, underwriting standards were also improved to help ensure that the loan we think we’re purchasing is the loan that we get.
Q: How is Fannie Mae helping homebuyers navigate the current state of the market coming out of the pandemic?
The philosophical approach that we take on the front end is focused on responsible and equitable access, as well as supporting sustainable homeownership. Maintaining a commitment to that is important in the current environment and, again, for setting up folks for long-term success in their homeownership journey.
The industry’s commitment to loan quality has been important, and it continues to be in the current environment. To a certain extent, loan defects and manufacturing quality can be a canary in the coal mine for future problems.
As we think about Fannie Mae’s mission, role, and responsibility in the market, it’s not just about responsible access upfront. In times like these, it’s about ensuring that we are leaning into supporting folks who may encounter a hardship affecting their ability to make their mortgage payment. This was tested during the COVID pandemic, engaging the muscle memory of what we’d learned on the loss mitigation side during the previous crisis. As a result, Fannie Mae was able to support more than 1.4 million borrowers through their financial challenges resulting from the pandemic, primarily through a new solution called payment deferral.
I think our current stats are that above 90% of those 1.4 million-plus homeowners who took advantage of forbearance during the pandemic have successfully exited and either paid off their mortgage or gotten back into current status. This is something we’re very proud of and the investments we made and lessons learned from the previous crisis proved successful.
Q: What advice would you give to first-time buyers in today’s marketplace who are interested in jumping into the market?
Affordability is very challenging right now–it’s the triple-whammy of higher interest rates, higher home prices driven by supply constraints, and the impact of inflation on consumers’ day-to-day expenses and cash flow.
These forces are putting pressure on low- and moderate-income folks who are being squeezed out of the opportunity to access the market. We announced pricing changes over the last year that are intended to better support low-income borrowers.
We’re also focused on the activities under our Equitable Housing Finance Plan, which, again, are aimed at addressing the longstanding and entrenched problem that has created a disparity between Black and Latino homeownership rates as compared to white homeownership rates. We are always thinking about new ways to solve the problems that are preventing folks from being able to access the market.
One of these issues is credit visibility. There are many individuals out there who are ready for homeownership, and fit within our credit standards, but just aren’t seen by the mainstream machine. Back in the fall of 2021, we announced our Positive Rental Payment History capability, where we leverage bank account data to see rental payments that people were making to help improve their credit risk assessment during the underwriting process.
We uncovered that people were not getting credit for the rental payments they were making, so we found a way to ingest that data to enhance their risk assessment.
In December, we rolled out a cashflow underwriting capability within Desktop Underwriter that’s intended to support folks lacking a credit score by evaluating a borrower’s monthly cash flow over a 12-month period. Again, this is a way to see people who are responsibly managing their money and provide them access where otherwise they wouldn’t have had the opportunity.
Our Multifamily Team recently engaged with several lenders and borrowers on the multifamily side to encourage them to start reporting rental payments to the credit bureaus. Over 144,000 rental units are participating, and early data shows that about 7,000 renters have established credit scores as a result. For those who already had a credit score and saw an improvement, there was an average increase of 45 points to their score.
Attacking some of these problems differently allows us to grow the pie, if you will, without subjecting us or the borrower to excess credit risk.
We are working on other opportunities to improve equitable access, such as how to reduce closing costs, in partnership with other players in the industry because we know we cannot do this by ourselves. In the mortgage ecosystem, we need everybody to play their part in helping solve this problem, so are looking for partners to align with us in tackling these issues.
Q: Can you describe the Treasury Department’s Making Home Affordable Program, and the role Fannie Mae plays in that program?
Making Home Affordable (MHA) was a government-sponsored housing relief program established in 2009. It was the Obama Administration’s response to the Great Recession and the housing crisis, and it was intended to provide foreclosure alternatives to homeowners impacted by the crisis.
MHA was intended to help struggling borrowers be able to modify their loans and avoid foreclosure. It also helped those who were continuing to pay their mortgages, but who were underwater as a result of the drop in home prices to provide a mechanism to refinance their mortgage.
Fannie Mae participated in the MHA in two distinct ways. One was as the program administrator for the Treasury Department for the overall MHA Program. We were administering the Home Affordable Modification Program (HAMP), which was intended to help borrowers receive a modification and avoid foreclosure. The Treasury program supported not only Fannie Mae loans, but also the broader market, and a lot of private-label security and bank portfolio loans flowed through the Treasury program.
The other role was our participation in HAMP and the Home Affordable Refinance Program (HARP), the refinance program for our borrowers and for the loans within Fannie Mae’s portfolio. We served as both a program participant and program administrator for GSE loans.
Q: What lies ahead for Fannie Mae?
We’re certainly excited about our opportunities to facilitate equitable and sustainable housing for both renters and homeowners. We are very focused on making sure that we do that safely and soundly so we can continue to support liquidity in the market, as we continue to support homeowners and their long-term homeownership success.