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FHFA proposes rule on capital requirements for Freddie and Fannie
On June 12, the Federal Housing Finance Agency (FHFA) announced a proposed rulemaking, which implements a regulatory capital framework for Freddie Mac and Fannie Mae (the Enterprises) including (i) a new framework for risk-based capital requirements; and (ii) two alternative approaches to setting minimum leverage capital requirements. Regulatory capital requirements for the Enterprises have been suspended since the Enterprises were placed in conservatorship in September 2008, and these new requirements would continue to be suspended while the Enterprises remain under conservatorship. FHFA stated that the purpose of the rulemaking effort is to develop a risk measurement framework to better evaluate each Enterprise’s business decisions while in conservatorship. As a result, the proposed risk-based capital requirements would “provide a granular assessment of credit risk specific to different mortgage loan categories, as well as market risk, operational risk, and going-concern buffer components.” The two options for minimal leverage capital requirements include (i) requiring the Enterprises to hold capital equal to 2.5 percent of total assets and off-balance sheet guarantees related to securitization activities; and (ii) requiring the Enterprises to hold capital equal to 1.5 percent of trust assets and 4 percent of non-trust assets. Comments on the proposed rulemaking must be submitted within 60 days of publication in the Federal Register.
Fannie Mae and Freddie Mac update high LTV refinance ratio for one-unit, principal residences
On May 22, Fannie Mae issued Lender Letter LL-2018-02, which updates options related to the high loan-to-value (LTV) refinance option released in September 2017 (LL-2017-05). Fannie Mae, at the direction of the Federal Housing Finance Authority and in conjunction with Freddie Mac, increased the minimum refinance LTV ratio from 95.01 percent to 97.01 percent for one-unit, principal residences. Additionally, there are no minimum credit score requirements or a maximum debt-to-income ratio for most high LTV refinances. The Lender Letter also notes that the Loan-Level Price Adjustment Matrix on Fannie Mae’s website is updated to include the high LTV refinances and provides specific loan delivery requirements.
Freddie Mac announced the same LTV ratio change in Guide Bulletin 2018-8. The bulletin also announced, among other things, a “Credit Fee in Price” cap structure, effective on January 1, 2019, for applicable refinance mortgages. According to the bulletin, the pricing cap is designed to balance affordability to the consumer and risk to the lender. The pricing cap structure is related to the LTV ratio of the refinance and occupancy type of the property. Other updates include, (i) clarification of income stability and credit inquiries; (ii) concurrent transfers of servicing; and (iii) investor reporting change initiative.
FHFA and the Enterprises release Language Access Plan
On May 10, Fannie Mae and Freddie Mac (the Enterprises), in conjunction with the Federal Housing Finance Authority (FHFA), released a Language Access Multi-Year Plan (Plan), which identifies potential solutions for the obstacles faced by limited English proficiency (LEP) borrowers in accessing mortgage credit. The Plan was developed based on research and testing conducted in 2016 and 2017 to assist the Enterprises and FHFA in identifying the issues faced by LEP borrowers throughout the mortgage cycle. Key milestones for the Enterprises and FHFA for 2018 and beyond include (i) creating a clearinghouse with centralized resources, such as translated mortgage documents; (ii) establishing a language access working group; (iii) developing a disclosure that accompanies the Preferred Language Question on the Uniform Residential Loan Application (URLA) (previously covered by InfoBytes here); (iv) developing glossaries that include mortgage and real estate terms; (v) in addition to Spanish, translating the URLA into additional languages; and (vi) creating a language access line to provide consumers with assistance expeditiously.
FHFA issues guidance for assessing mortgage asset credit risk
On April 25, the Federal Housing Finance Agency (FHFA) issued advisory bulletin AB 2018-02 to provide guidance for Federal Home Loan Banks (FHL Banks) on the use of models and methodologies when assessing mortgage asset credit risk. The advisory bulletin applies to FHL Banks that acquire Acquired Member Asset loans, mortgage-backed securities (MBS), and collateralized mortgage obligations. Exclusions from application of the guidance include certain mortgage-related assets that are guaranteed by, or operating with the capital support of, the U.S. government, including Fannie Mae and Freddie Mac. When selecting a credit risk model that is “sufficiently robust to produce meaningful loss estimates,” FHFA advises FHL Banks to consider the following when complying with regulatory requirements: (i) mortgage asset credit risk model selection; (ii) macroeconomic stress scenarios; (iii) stress scenario determinations; and (iv) credit enhancements. The guidance permits the exclusion of legacy private label MBS from application of the guidance where the stress loss estimates would be de minimis, and provides methods for determining estimated credit losses associated with securities that cannot be modeled.
The new guidance supplements general FHFA guidance on model risk management and takes effect January 1, 2019.
FHFA announces new Uniform Mortgage-Backed Security
On March 28, the Federal Housing Finance Authority (FHFA) announced Fannie Mae and Freddie Mac (the Enterprises) will issue a new security, the Uniform Mortgage-Backed Security (UMBS), on June 3, 2019. The UMBS will replace all current offerings of mortgage-backed securities that occur in the to-be-announced (TBA) forward market. According to the announcement, the new UMBS will be issued using the Common Securitization Platform (CSP) through the Enterprises’ joint venture, Common Securitization Solutions (CSS). See previous InfoBytes coverage here.
FHFA proposes changes to the Affordable Housing Program requirements
On March 6, the Federal Housing Finance Agency (FHFA) announced a proposed rule to modify the Federal Home Loan Banks’ (FHLBanks) Affordable Housing Program (AHP). Under the Federal Home Loan Bank Act, FHLBanks are required to establish an AHP that provides subsidies to low-income consumers to purchase a home; for long-term, low- and moderate-income rental housing; and for the purchase, construction or rehabilitation of qualifying rental housing. According to the FHFA, the proposed amendments are intended to assist FHLBanks in better aligning their AHP funds with the affordable housing needs of their districts. Among other things, the proposed amendments would (i) provide FHLBanks additional authority to allocate their AHP funds; (ii) authorize FHLBanks to establish “special competitive funds” for specific district needs; (iii) allow FHLBanks to create their own project selection criteria; and (iv) align the AHP project monitoring requirements with other federal funding programs. Comments on the proposed rule will be due 60 days after publication in the Federal Register.
FHFA extends deadline to March 30 for credit score input
On February 2, the Federal Housing Finance Agency (FHFA) announced that it is extending the deadline for input on how Fannie Mae and Freddie Mac (the GSEs) should update their current credit score requirements. Interested parties now have until March 30 to respond to the 22 questions outlined in the Request for Input (RFI) issued by FHFA on December 20, 2017. As previously covered by InfoBytes, the RFI sought input on four options for replacement of the Classic FICO credit score model currently used by the GSEs. The four options include (i) requiring the use of either the FICO 9 credit score model or the VantageScore 3.0 credit score model; (ii) requiring the use of both the FICO 9 and the VantageScore 3.0 credit score models; (iii) allowing lenders to choose between either the FICO 9 or the VantageScore 3.0 credit score models; or (iv) allowing lenders to deliver multiple scores through a waterfall approach that would establish a primary and a secondary score.
Special Inspector General for TARP highlights MHA threat
On January 30, the Office of the Special Inspector General (SIG) for the Troubled Asset Relief Program (TARP) delivered a report to Congress, which identified unlawful conduct by certain of the 130 financial institutions in TARP’s Making Home Affordable Program (MHA) as the top threat to TARP and, thus, the SIG’s top investigative priority. The SIG explained that “significant oversight [of MHA] is required because of the risk of waste, fraud, and abuse” that occurs by participants. Indeed, the report highlights specific instances of mismanagement of MHA by a select number of large financial institutions. Close to one million homeowners still participate in MHA initiatives. Accordingly, the risk of unlawful conduct by financial institutions in this area can destabilize the market and jeopardize other participants in MHA such as Fannie Mae, Freddie Mac, FHFA, and the VA.
FHFA Requests Input on GSE Credit Score Requirements; Releases 2018 Scorecard
On December 20, the Federal Housing Financial Agency (FHFA) announced a Request for Input (RFI) seeking feedback from interested parties regarding how Fannie Mae and Freddie Mac (the GSEs) should update their current credit score requirements. Specifically, the GSEs plan to stop using the Classic FICO credit score model and to replace it with one of four options. These options include (i) requiring the use of either the FICO 9 credit score model or the VantageScore 3.0 credit score model; (ii) requiring the use of both the FICO 9 and the VantageScore 3.0 credit score models; (iii) allowing lenders to choose between either the FICO 9 or the VantageScore 3.0 credit score models; or (iv) allowing lenders to deliver multiple scores through a waterfall approach that would establish a primary and a secondary score. The FHFA’s RFI asks interested parties to provide feedback on these options by responding to 22 questions outlined in the RFI by February 20.
On December 21, FHFA released the 2018 Scorecard outlining specific conservatorship priorities for the GSEs and their joint venture, Common Securitization Solutions, LLC (CSS). The 2018 Scorecard continues to identify many of the priorities outlined in the 2017 Scorecard. In addition, the 2018 Scorecard highlights the FHFA’s focus on gathering information to support its assessment of single-family rental strategies and extends the timeline for implementation of the Single Security Initiative on the Common Securitization Platform to the second quarter of 2019.
FHFA Increases Conforming Loan Limits for 2018
On November 28, the FHFA announced that it will raise the maximum conforming loan limits for mortgages purchased in 2018 by Fannie Mae and Freddie Mac from $424,100 to $453,100. The announcement marks the second time FHFA has increased the baseline loan limit since 2006. In high-cost areas, such as Los Angeles, New York, San Francisco, and Washington, D.C., the maximum loan limit will be $679,650. For a county-specific list of the maximum loan limits in the U.S., click here.