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FHFA seeks public input on new closed-end second mortgage product
On April 22, the FHFA sent to the Federal Register a notice of a proposed new product from Freddie Mac to begin purchasing certain single-family closed-end second mortgages. According to the proposal, Freddie Mac would purchase certain closed-end second mortgage loans from approved and active sellers and on properties for which Freddie Mac already owns the first mortgage, subject to additional product and term limitations. FHFA’s stated goal is to offer borrowers a second mortgage at a lower interest rate than other financing alternatives given the higher interest rate environment, and increased competition among second mortgage lenders. FHFA requested comments on nine questions, with comments to be received by May 22.
Director Thompson outlines FHFA’s efforts to promote housing access and affordability
On April 18, Sandra L. Thompson, Director of the FHFA, addressed the U.S. Senate Committee on Banking, Housing, and Urban Affairs, emphasizing FHFA’s role in promoting access to affordable housing for homebuyers and renters nationwide through the regulation and supervision of its regulated entities—Fannie Mae, Freddie Mac, and the Federal Home Loan Bank System—to ensure they meet their housing mission. Acknowledging the reforms implemented by FHFA over the past 15 years, which have strengthened the financial conditions of regulated entities, and FHFA’s ongoing review of the FHLBank System, Thompson outlined the agency’s efforts to address barriers to affordable and sustainable housing. Her recommendations include amending the Bank Act to expand the range of member institutions eligible to pledge community financial institution (CFI) collateral in order to secure affordable FHLBank advances to include all Community Development Financial Institutions and credit union members, and increasing the statutorily required minimum funding contribution for the Affordable Housing Program from 10 percent to at least 20 percent of FHLBank net income from the previous year. Thompson further highlighted FHFA’s efforts to address appraisal bias and improve data to promote equitable valuations, reduce costs associated with title verification, and codify the requirements that Fannie Mae and Freddie Mac maintain Equitable Housing Finance Plans, among other initiatives. Thompson concluded her remarks by discussing FHFA’s ongoing credit score initiative, which seeks to transition Fannie Mae’s and Freddie Mac’s use of Classic FICO to the use of the more inclusive FICO 10T and VantageScore 4.0 models, alongside shifting from tri-merge to bi-merge credit reports.
CSBS and FHFA sign agreement to enhance information sharing on nonbank mortgage companies
On April 10, the Conference of State Bank Supervisors (CSBS) and the FHFA announced they have signed a memorandum of understanding (MOU) to enhance information sharing on nonbank mortgage companies. The MOU reportedly aimed to improve the ability to coordinate on market developments, identify and mitigate risks, and ultimately, further protect consumers, taxpayers, and the nation’s housing finance system. CSBS Board Chair, Lise Kruse, emphasized the value of collaboration between state and federal regulators to support a stable mortgage marketplace, given the distinct authority each supervisory agency maintained over the nonbank mortgage industry. According to the CSBS, state financial regulators primarily oversee nonbank mortgage companies, while the FHFA regulated significant entities like Fannie Mae and Freddie Mac, which served as important counterparties to the nonbank mortgage industry. According to FHFA Director, Sandra L. Thompson, the new information sharing protocols will enable both state and federal regulators to supervise the mortgage industry more effectively, leading to improved outcomes for all stakeholders.
Fannie Mae to issue RFP for Title Acceptance pilot
On April 12, the FHFA announced plans to test a pilot program that would permit lenders to forego a lender’s title insurance policy or an attorney opinion letter for some refinance loans sold to Fannie Mae, aiming to lower closing costs for borrowers. Since the announcement, Fannie Mae has been working with the FHFA to develop a Title Acceptance pilot framework and has received interest from title, settlement service, and technology providers to join the pilot. In light of this, Fannie Mae declared its intention to release a Request for Proposal (RFP) by the end of the second quarter to identify and assess potential suppliers to participate in the pilot.
FDIC releases report on bank's past discriminatory lending practices
On April 3, the FDIC made public for the first time its Community Reinvestment Act Performance Evaluation for a bank from September 2022. The bank focused on residential and commercial lending and had $1.15 billion in assets at the time of the review. During its supervision window from 2019 to 2022, the FDIC rated the bank’s CRA rating as “Needs to Improve,” which was a downgrade from its previous rating of “Satisfactory.” Although the FDIC found that the bank “demonstrated satisfactory performance” under the Lending and Community Development Tests, it was found to have violated ECOA and FHFA. Specifically, the FDIC found that the bank engaged in discriminatory lending through alleged redlining practices, the FDIC deemed. The FDIC noted that these violations occurred due to a lack of sufficient oversight and appropriate policies and procedures.
FHFA eliminates household income restriction on PTFCs
On March 12, the FHFA published a final rule in the Federal Register titled “Exception to Restrictions on Private Transfer Fee Covenants (PFTCs) for Loans Meeting Certain Duty to Serve Shared Equity Loan Program Requirements,” which established an additional exception to the FHFA’s regulation proscribing Fannie Mae, Freddie Mac, and FHLBanks from “purchasing, investing in, [and] accepting as collateral” mortgages encumbered by certain types of PTFCs, or related securities, subject to certain exceptions. This new exception will allow the banking entities to engage in transactions if the loans met the equity loan program requirements for the resale restriction programs “without regard to any household income limit.” The final rule will go into effect on May 13.
FHFA announces increases in 2024 conforming loan limits
On November 28, FHFA announced that it will raise the maximum conforming loan limits (CLL) for mortgages purchased in 2024 by Fannie Mae and Freddie Mac from $726,200 to $776,550 (the 2023 CLLs were covered by InfoBytes here) for most of the United States. In Alaska, Hawaii, Guam, and the U.S. Virgin Islands, the maximum loan limit for one-unit properties will be 1,149,825. According to the FHFA, due to rising home values (up 5.56 percent since 2022), CLLs will be higher for all but five U.S. counties.
FHFA reports no internal control weaknesses FY 2023 performance report
On November 15, FHFA released its annual performance report, titled “FHFA FY 2023 Performance and Accountability Report” to detail how it regulated the FHLBank system, as well as Fannie Mae and Freddie Mac, during the past fiscal year. The report refers to its FY 2022-2026 Strategic Plan with the goals of securing the safety of regulated entities, fostering equitable housing finance markets, and stewarding FHFA’s infrastructure. For FY 2023, FHFA identified 35 performance targets to help guide it toward achieving its strategic goals. Of the 35 targets, the FHFA met 31 of them––an 89 percent success rate. Table 2 from page 15 of the report displays the goals and ones that have not been met, including (i) “Improve Time-to-Hire” within 80 days; and (ii) “Develop FHFA Information Technology Strategic Plan” by the time the report had been published.
Looking forward, FHFA wishes to implement an “Enterprise Fair Lending Rating System to annually assess each Enterprise’s compliance with fair lending and fair housing standards.” For fintech initiatives, FHFA will publish a summary on Velocity TechSprint, a problem-solving event with “mortgage industry leaders and fintech entrepreneurs to address mortgage market issues.”
FHFA releases advisory bulletin for pilot and voluntary programs
On November 13, FHFA released an advisory bulletin on the FHLBank Framework for Pilot and Voluntary Programs. The desire for FHFA to develop innovative pilot programs is to support “affordable housing, equity advancement, and community development for underserved and financially vulnerable populations.” The pilot programs would be implemented and then analyzed to determine if they should continue, be expanded, or stop altogether. Some pilot programs may be to “test and learn” while some end because they do not meet FHLBank objectives. What the FHFA disallows from its pilot programs are “[p]roducts, programs, and services implemented under established FHFA statutory and regulatory authorities.” However, voluntary programs have included “grants, down payment assistance programs, and special purpose credit programs.”
The FHFA guidance recommends that FHLBank’s board of directors establish specific parameters for pilot and voluntary programs by March 29, 2024. This bulletin was a result of public input phases of the “FHLBank System at 100: Focusing on the Future” initiative, as previously covered by InfoBytes here. Stakeholder feedback claimed that “FHLBanks should do more to support the affordable housing and community development components of their mission, especially in addressing the needs of underserved or financially vulnerable populations.”
FHFA releases comprehensive report of entire FHLBank system
On November 7, the FHFA released a report titled “FHLBank System at 100: Focusing on the Future,” providing a comprehensive overview of the Federal Home Loan Banks (FHLBank) system in its entirety. The FHLBank system is comprised of domestic and small, community-focused lenders that are connected to the global capital markets, engendering lenders to “better support housing and community development” through liquidity. The FHFA’s report acknowledged that the banking sector volatility in March 2023 led to a “significant advance demand” and it “provided a record volume of advances” to their members.
Furthermore, the report details the background of the FHLBank System, such as its history, member type, and business functions. The features from the FHLBank system’s mission are to provide liquidity to members, as well as support housing and community developments. The chapter on stable and reliable sources of liquidity confirms that the FHLBank system is not the lender of last resort due to its funding structure of bonds and short-term notes. In addition, the Moving Forward chapter offers a list of goals for the FHLBank system to adopt. Interestingly, Appendix 5 of the report highlights an analysis of four crises from the banking failures from March to May 2023.