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FHFA Includes a Language Preference Question in the Universal Residential Loan Application
On October 20, the Federal Housing Finance Agency (FHFA) announced that it would include a language preference question on its updated Universal Residential Loan Application (URLA). The question will allow borrowers to indicate if they prefer to communicate in a language other than English and to identify that language. In response to industry concerns, in the preferred language question text, FHFA includes disclosure language that informs borrowers their response will not negatively affect their application, indicates a preferred language does not mean the lender agrees to communicate in that language, and provides language assistance resources.
FHFA plans to issue the new URLA form later this year, which will go into effect beginning in July 2019. The form will be mandatory for loans made by Fannie Mae and Freddie Mac beginning in February 2020.
FHFA Director Provides Update on GSE Conservatorship to House Financial Services Committee
On October 3, the Director of the Federal Housing Finance Agency (FHFA), Melvin L. Watt, testified at a hearing before the House Financial Services Committee. The testimony provided an update on FHFA’s conservatorship of Fannie Mae and Freddie Mac (GSEs) and Watt’s views on housing financing reform. In his prepared remarks, Watt informed the Committee that the GSEs’ financial performance has improved significantly over the course of the FHA’s conservatorship and that the GSEs continue to provide liquidity to the housing finance market. Nonetheless, Watt stressed that in less than three months, both Fannie Mae and Freddie Mac’s taxpayer-financed capital buffer will run out, and any loss the GSEs experience after that would require additional money from taxpayers. Watt warned that any additional draw of taxpayer support could erode investor confidence in the GSEs, which could result in reduced liquidity in the mortgage-backed securities market and increase the cost of credit for borrowers.
Second Circuit Upholds Large Monetary Judgment Against International Bank
On September 28, the U.S. Court of Appeals for the Second Circuit affirmed a New York District Court’s 2015 ruling, which requires a major international bank to pay $806 million for selling allegedly faulty mortgage-backed bonds to Fannie Mae and Freddie Mac. In the original suit brought by the Federal Housing Finance Agency (FHFA), FHFA alleged that the bank overstated the reliability of the loans for sale. In upholding the lower court’s decision, the Second Circuit concluded that the marketing prospectus used to sell the mortgage securities to Fannie and Freddie between 2005 and 2007 contained “untrue statements of material fact.” Specifically, the prospectus falsely stated that the loans were compiled with the underwriting standards described therein, including standards related to assessing the creditworthiness of the borrowers and appraising the value of properties.
FHFA Releases July 2017 Refinance Report
On September 14, the Federal Housing Finance Agency (FHFA) published its Refinance Report for July 2017. As previously reported by the FHFA and other sources, interest rates continued to increase for 30-year fixed-rate mortgages in July (from 3.9 percent in June to 3.97 percent), while overall refinance volume decreased. Specific to the Home Affordable Refinance Program (HARP), the report found, among other things, that borrowers completed 2,305 HARP refinances in July, bringing the total HARP refinances to 3,473,109. Consistent with recent Refinance Reports, the report also notes that borrowers who refinanced through HARP had a lower delinquency rate compared to borrowers eligible for HARP who did not refinance through the program. Last month, the FHFA extended HARP until December 31, 2018.
FHFA Reports Results of Fannie Mae, Freddie Mac Annual Stress Tests
One August 7, the Federal Housing Finance Agency (FHFA) published a report providing the results of the fourth annual stress tests conducted by government-sponsored enterprises Fannie Mae and Freddie Mac (GSEs). In March 2017, the FHFA issued orders directing the GSEs to report the results of the required Dodd-Frank Act stress test to enable financial regulators to determine whether the companies have sufficient capital to support operations in adverse or severely adverse economic conditions. (See previous InfoBytes coverage here.) According to the report, Dodd-Frank Act Stress Tests Results – Severely Adverse Scenario—which provides modeled projections on possible ranges of future financial results and does not define the entirety of possible outcomes—the GSEs will need to draw between $34.8 billion and $99.6 billion in incremental Treasury aid under a “severely adverse” economic crisis, depending on how deferred tax assets are treated. The losses would leave $158.4 billion to $223.2 billion available to the companies under their current funding commitment agreements. Notably, the projected bailout need is lower than what the FHFA reported last year, which ranged between $49.2 billion and $125.8 billion.
FHFA Releases Q1 2017 Credit Risk Transfer Progress Report; Fannie Mae, Freddie Mac Transfer $5.5 Billion in Risk to Investors
On July 26, the Federal Housing Finance Agency (FHFA) released its Credit Risk Transfer Progress Report, presenting a comprehensive overview of the status and volume of credit risk transfer transactions to the private sector by Fannie Mae and Freddie Mac (the Enterprises) through the first quarter of 2017 in the single-family market. As outlined in the progress report, since the beginning of the Enterprises’ Single-Family Credit Risk Transfer Programs in 2013 through March 2017, the Enterprises have transferred more than $54.2 billion in credit risk to private investors, amounting to about 3.4 percent of $1.6 trillion in unpaid principal balance. In Q1 the Enterprises transferred about $5.5 billion worth of credit risk. Transfers occurred through “debt issuances, insurance/reinsurance transactions, senior-subordinate securitizations, and a variety of lender collateralized recourse transactions.” Additionally, the report examines the role of primary mortgage insurance in credit risk transfer transactions and the Enterprises’ debt issuances.
International Bank Settles RMBS Claims with FHFA for $5.5 Billion
On July 12, the Federal Housing Finance Agency (FHFA), as conservator of Fannie Mae and Freddie Mac (GSEs), announced a $5.5 billion settlement with an international bank. The settlement resolves FHFA’s claims, lodged in a federal lawsuit in the District of Connecticut, that the bank violated federal and state securities laws in relation to residential mortgage-backed securities (RMBS) trusts purchased by the GSEs between 2005 and 2007. The settlement covers all RMBS “issued, sponsored, sold, or underwritten by . . . [d]efendant between January 1, 2004 and December 31, 2008,” which is intended to include all securities for which FHFA brought claims against the bank in the District of Connecticut action. Under the terms of the agreement, the bank will pay $4.525 billion of the settlement amount to Freddie Mac, and approximately $975 million to Fannie Mae.
Bipartisan HOME Act Introduced to Protect Access to Affordable Housing
On June 13, Representatives Randy Hultgren (R-Ill.) and Gwen Moore (D-Wis.) introduced legislation to strengthen the Federal Home Loan Bank (FHLB) System by ensuring access to mortgage credit and affordable housing assistance for millions of consumers. As set forth in a June 15 press release issued by Rep. Hultgren’s office, the Housing Opportunity Mortgage Expansion (HOME) Act (H.R. 2890) would allow lenders to regain membership in the FHLB System provided they (i) joined before the Federal Housing Finance Agency (FHFA) proposed its recently finalized membership rule, and (i) are able to “demonstrate a commitment to residential mortgage activities.”
As previously discussed in InfoBytes, FHFA’s final rule added a revision intended to help streamline membership applications. However, Hultgren asserts that the rule “restricts FHLB membership eligibility” by excluding “captive insurers” under its definition of an “insurance company” thereby prohibiting membership. The HOME Act, Hultgren states, “would clarify that companies with a history and mission of supporting residential housing should be able to continue to serve our communities.”
Industry Groups Submit Comments on FHFA’s Proposed Evaluation Guidance for “Duty to Serve” Provisions
As previously discussed in InfoBytes, the Federal Housing Finance Agency (FHFA) published a final rule last December implementing certain “Duty to Serve” provisions of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992, as amended by the Housing and Economic Recovery Act of 2008. Among other things, the rule requires that Fannie Mae and Freddie Mac (Enterprises) adopt formal plans to improve the availability of mortgage financing in a “safe and sound manner” for residential properties that serve “very low-, low-, and moderate-income families” in three specified underserved markets: manufactured housing, affordable housing preservation, and rural markets. The FHFA also published a Proposed Evaluation Guidance to outline the following: (i) FHFA's expectations regarding the development of such Underserved Markets Plans, and (ii) the process by which FHFA will evaluate annually Fannie’s and Freddie’s achievements under their Plans. The deadline to submit comments was June 7.
Mortgage Bankers Association (MBA) Letter. In its June 7 comment letter, the MBA stated that it commends efforts undertaken by the FHFA to develop a framework of requirements for the Enterprises to follow when preparing their Underserved Market Plans, as well as an evaluation system to rate implementation progress. Particularly, the MBA noted that, based on its data, the U.S. “will see 15.9 million additional households formed over the decade ending in 2024 . . . [which] will increase the need for all types of housing, including already limited affordable housing for very low-, low-, and moderate-income borrowers.” Furthermore, “manufactured home financing, affordable housing preservation, and additional rural housing opportunities can play a key role in providing both first-time home-buying opportunities and affordable rental options for consumers in these underserved markets.” With respect to the Proposed Evaluation Guidance, the MBA stressed the importance of flexibility so adjustments can be made for “unanticipated obstacles or opportunities caused by significant changes in market conditions that arise.”
Center for Responsible Lending (CRL) Letter. Also on June 7, CRL issued a comment letter to the Proposed Guidance in which it offered recommendations concerning “public input and transparency, assessing the contents of the plants to ensure meaningful objectives, and the evaluation and scoring process.” Specifically, CRL noted that while the Enterprises have taken measures such as reinstating lower down payment programs and creating pilot programs to address the underserved markets, it believes a “robust duty to serve process will further access credit initiatives by promoting and incentivizing responsible and sustainable lending to lower wealth households.” However, the CRL also raised several issues over the Proposed Evaluation Guidance, specifically in terms of the proposed scoring system. Under current FHFA guidance, Enterprises’ plans are scored on three factors: progress, impact, and effort/implementation. Conversely, under the proposed scoring system, failure only occurs due to a lack of progress because the impact and effort criteria are assessed only after the Enterprise receives a pass/fail determination. In reaction, CRL raised the following concerns: (i) “What guards against Enterprises putting only low impact objectives in the plan?” (ii) “What incentives do Enterprises have to score highly (above minimally passing)?” and (iii) “What guards against only proposing easily achievable objectives?” In addition to scoring methodology changes, CRL recommended that the FHFA implement a more rigorous loan product and loan purchase evaluation process and increase transparency.
FHFA Publishes Final Rule on State-Chartered Credit Union Membership
On June 5, the Federal Housing Finance Agency (FHFA) issued a final rule amending its regulations to allow certain state-chartered credit unions without Federal share insurance to obtain Federal Home Loan Bank memberships. The final rule is substantially the same as the proposed rule issued by the FHFA in September 2016 with the exception of an added revision intended to help streamline credit union Bank membership applications. The amendment was adopted in order to implement a provision of the Fixing America's Surface Transportation Act and goes into effect July 5, 2017.