While the Bipartisan Housing Commission produced a long-range plan for reshaping the housing finance system, it also called attention to more immediate issues that need to be addressed by regulators.
These issues involve loan repurchase risk, FHA compare ratios, appraisals and the tidal wave of regulations mortgage lenders are facing.
The commission indicates that the Federal Housing Finance Agency’s effort to clarify lenders’ repurchase exposure on GSE loans did not go far enough. “While this guidance is an important start, and provides partial relief, several factors limit its effectiveness in stimulating new lending,” the commission says.
The bipartisan commission, co-chaired by former Sens. Christopher Bond and George Mitchell and former HUD secretaries Henry Cisneros and Mel Martinez, released its report on Feb. 25.
The BHC members also raised concerns about the use of distressed sales in valuing traditional home sales. “To remedy this situation, Fannie Mae, Freddie Mac and FHA could refuse to accept distressed sales as valid comps.”
The commission also takes issue with the Federal Housing Administration comparing lender performance based on early delinquency rates. “While compare ratios serve as a useful analytic tool, the current application of the ratios may have the effect of tightening credit by FHA lenders to creditworthy borrowers.”
Meanwhile, several important rulemakings have been finalized in the past few months and more rules are pending. “Lenders report that uncertainty as to their impact has led them to exercise caution and pull back on new originations for all but the lowest-risk borrowers.”
To address this uncertainty, the commission is urging the president to direct the Treasury Department to assess the rulemaking’s impact on affordability and access to mortgage credit. And put together a plan to align the regulations to “help get credit flowing again,” the BHC report says.
“A top official within the Treasury Department or in the White House should be tasked with day-to-day responsibility for coordinating the implementation of this plan.”