The Federal Housing Finance Agency is trying to lower risk-based fees on loans underwritten by Fannie Mae and Freddie Mac, which critics say are hurting first-time, experienced homebuyers outside the traditional mortgage market.
FHFA acting director Sandra Thompson said Thursday that the agency is evaluating changes to the 2008 debt price adjustment to help government-sponsored companies manage risk.
Mortgage lenders, brokers and housing experts have urged FHFA to cut costs that add to the cost of home loans for many borrowers.
“One of the things we’re committed to is pricing. We haven’t fully reviewed everything related to Fannie-Freddy’s pricing analysis and underwriting costs and loan pricing at risk,” Thompson said at a virtual event at the National Habitats Conference. “We only realized it then. It’s on my to-do list. ”
Many industry experts say that when first implemented, loan price adjustments were not necessary during the financial crisis. Housing experts have long argued that costs prevent blacks like credit and Spanish-speaking consumers from becoming homeowners.
A debt price adjustment has been added to the price of a home loan guaranteed by Fannie and Freddie under former FHFA director Ed DeMarco. He wanted an extra buffer for risky borrowers with low down payments. Fees can be as high as 3.75% of the upfront fee, but are usually stated at around 0.75%, or 75 basis points, plus the borrower’s annual interest rate.
GSE is legally obligated to finance only loans for which the borrower has proven its ability to repay. Many experts believe that debt price adjustments run counter to the GSE’s mandate to serve underserved communities, as the costs of reducing the affordability of Fannie and Freddie-sponsored loans.
However, borrowers who can’t afford a 20% down payment on an apartment also need to get private mortgage insurance, meaning that many borrowers with low credit and down payments will be left out by the traditional market. You can usually get a home loan from the Federal Housing Administration.
“Fanny and Freddie are homebuyers at double the price because not only do they force them to pay for mortgage insurance, they also pay a low price adjustment and they both provide basically first loss protection. Dave Stevens, former FHA commissioner who is now CEO of Mountain Lake Consulting.
Thompson, who has been acting director since June, also spoke about the FHFA’s plans to bridge the gap between racial and property capital. The agency asked Fanny and Freddie to develop a three-year plan to identify previously redrawn geographic areas and find quantitative activities to fill the racist capital gap. He seeks feedback from industry on what to include in the plan.
“We had this conversation because I can’t remember how many years it was and it just took a long time,” Thompson said. “We really wanted the company to come up with some strategies that would help us get the needle into those houses.”
Thompson, most recently Assistant Director of Housing and Mission Affairs at FHFA, has worked with the agency since 2013. Prior to joining FHFA, he worked for the Federal Deposit Insurance Corporation for 23 years, most recently as a director. Risk management monitoring. After Biden’s departure, he became deputy director, former FHFA director Mark Calabria.
Thompson also discussed the FHFA’s goals for affordable housing, fair credit decisions, to include rent payments in insurance initiatives and decisions. He said the agency received a refusal when announcing that it would look at the history of lease payments to prospective borrowers.
“People are like, ‘Oh no, that opens the credit box,'” he said, explaining the many other factors that went into the signing process.
“We’re focused on sustainability and giving people credit to pay back,” Thompson said. “Sometimes loans with riskier characteristics have a compensatory factor. People have cash advances or have reserves. We take a holistic view of a borrower’s ability to repay. ”
Since Thompson took the helm, FHFA has removed adverse market fees on most refinanced mortgages, signed agreements to strengthen proper credit use with the Department of Housing and Urban Development, and suspended some restrictions imposed by Trump officials. government-owned codified by Fanny May and Freddie Mack.
Thompson explains the importance of a holistic approach to GSE policy.
“I think this is very important because we cite corporate conservatism to examine the impact of policies – affecting equity and affordability – and take a holistic approach. ,” He says.