8 FHFA developments impacting the housing market

January 17, 2023 10:53 AM

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A review of the Federal Home Loan Bank System for the first time in nearly 100 years, called for by FHFA Director Sandra Thompson, has brought the relevance of the system into question. Meanwhile, new FHFA proposals for GSE multifamily goals based on percentage share rather than number of units could help increase the number of affordable apartment units.

For more on these stories and other FHFA developments, read our roundup below.

Senate Banking Confirmation Hearing For Fed Governor Brainard and FHFA Nominee Thompson

Al Drago/Bloomberg

FHLB system inquiry sheds light on its relevance today

The future of the nearly 100 year-old Federal Home Loan Bank System is up for discussion as the industry debates the purpose of the entity in a mortgage market that has changed significantly in the decades since it was founded.

Established to provide banks and thrifts with the liquidity to allow them to purchase home loans, the system has numerous advocates among smaller, community banks and housing experts, who spoke powerfully on its behalf in a recent review ordered by FHFA Director Sandra Thompson.

However, large banks, nonbanks and insurance companies, who are among the top users of FHLB funding and the primary beneficiaries of the system, remained conspicuously silent on the subject.

Read more:

Big banks, nonbanks largely absent from FHFA's Home Loan bank inquiry

Also:

Silvergate Bank loaded up on $4.3 billion in Home Loan bank advances

Listening session gives FHFA food for thought

The FHFA received a range of insightful feedback on the role of technology in housing finance after hosting a fall public listening session designed to ascertain the status quo of tech innovation in the industry.

The agency's new Office of Financial Technology is tasked with responding to the issues and concerns raised by industry stakeholders, which include appraisal com adjustments, vendor consolidation and residual income analysis.

"The new office will help advance effective risk management as FHFA evaluates applications of fintech in housing finance, as well as in compliance, and regulatory activities," said FHFA Director Sandra Thompson.

Read more:

5 things we learned from the FHFA listening session on fintech

FHFA to waive some upfront fees and update credit score model

The Federal Housing Finance Agency announced on October 24 that it will waive upfront fees for certain borrowers and affordable mortgage products. The agency is also moving to replace the outdated credit score model used by Fannie Mae and Freddie Mac.

The transition from Classic FICO, which has been used by the enterprises for over 20 years, to FICO 10T and VantageScore 4.0, will be a lengthy undertaking. The agency said the enterprises will begin a "multi-year implementation phase."

Borrowers with limited resources for down payments and those in underserved communities will benefit from the announced fee elimination.

First-time homebuyers at or below 100% of area median income and below 120% AMI in high-cost areas will qualify, as well as borrowers who opt for HomeReady and Home Possible loans, which are among Fannie Mae and Freddie Mac's most affordable lending products.

The agency expects one in five borrowers to be eligible for these pricing benefits, Thompson said.

Read more:

FHFA to waive some upfront fees and update credit score model

Also:

What the FHFA credit score change could mean for the industry

Fannie and Freddie's 2023 conforming loan limits top $1M in some places

In 2023, Fannie Mae, Freddie Mac and the Federal Home Loan Banks will buy home loans as pricey as $726,200 in most areas and over a million dollars in high-cost locations, the Federal Housing Finance Agency announced.

The baseline conforming loan limit's increase of 12% from this past year reflects the year-over-year change in home prices, not the more recent month-to-month slowdown in appreciation. If home prices continue to decline next year, Fannie Mae and Freddie Mac are likely to end up with an expanded footprint, a Keefe, Bruyette & Woods commentary said.

In the high cost locations, where the median value is 115% of the baseline conforming amount for one-unit properties — the 2023 limit of $1,089,300 is 150% of the baseline $726,200. By law, all properties in Alaska, Hawaii, Guam and U.S. Virgin Islands fall under the higher limit.

Read more:

2023 conforming loan limit to rise 12%, topping $1M in some areas

Also:

Higher conforming limits move over 2M homes out of jumbo market

And:

2023 conforming limits are too high, Housing Policy Council argues

Demand for investment property is undermining affordable housing, says Calabria

Former director of the FHFA Mark Calabria has raised concerns about the role of the GSEs in the property investment market in the wake of figures indicating an increasing number of single homes are being bought by investors looking to rent or flip the property rather than live in them.

Calabria pointed to the FHFA's decision to suspend certain limitations in its Preferred Stock Purchase Agreement with Fannie and Freddie, which has "undermined housing affordability, as they have increased investor demand for homes that would have otherwise gone to homeowners."

But some believe the rising demand for investment properties is due more to market dynamics across the country as opposed to specific federal policies, noting that the increase in investor market share began before the FHFA's changes to the PSPA.

Read more:

Calabria: FHFA is making housing less affordable by backing investors

GSEs lower their multifamily lending caps for 2023

The Federal Housing Finance Agency announced it will lower the multifamily lending caps for each of the two government-sponsored enterprises by $3 billion in 2023.

The annual cap for purchases of apartment loans by Fannie Mae and Freddie Mac was lowered to $75 billion each ($150 billion in total) due to the shrinking origination forecasts, according to the FHFA.

The agency could increase the limit to account for changes in market conditions if warranted. It promised to avoid disrupting the market by lowering the caps further.

In addition to lowering the annual cap, which had been increased by $8 billion for 2022, the agency is adding a new workforce housing category to its standing requirement that 50% of loans purchases be considered affordable "mission-driven" housing.

Read more:

GSEs lower their multifamily lending caps for 2023

Servicers take on fair lending reporting requirement

The FHFA has continued its drive to promote more equitable financing in the industry by making fair lending reporting a mandatory requirement for mortgage servicers.

The new mandate for servicers working GSE-backed loans to collect and maintain fair lending data goes into effect in March 2023.

"Having fair lending data travel with servicing will help servicers do the important work of providing assistance to borrowers in need," said FHFA Director Sandra Thompson.

Read more:

FHFA adds fair lending reporting mandate for servicers

FHFA will require preapproval for new Fannie Mae, Freddie Mac products

The Federal Housing Finance Agency published a rule on December 20 that requires Fannie Mae and Freddie Mac to provide advance notice of new activities and obtain approval prior to launching new products.

"The final rule clarifies how FHFA will conduct assessments of new activities and products proposed by the Enterprises," the agency's director, Sandra Thompson, said in a press release. "Enterprise activities can have significant effects on the mortgage market, consumers, and industry stakeholders, and today's rule further refines FHFA's process to ensure activities continue to serve the Enterprises' mission while maintaining high standards of safety and soundness."

The final rule goes into effect 60 days after publication and will replace an interim rule in place since July 2, 2009. Fannie Mae and Freddie Mac pilot programs, and any modifications of duration or volume made to them, are considered new activities subject to this rule.

Read more:

FHFA will require preapproval for new Fannie Mae, Freddie Mac products