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On January 7, HUD published its proposed replacement for the 2015 version of the Affirmatively Furthering Fair Housing (AFFH) rule. According to HUD, the proposed AFFH rule will provide state and local government participants with more straightforward advice “to help them improve affordable housing choices in their community.”
In August of 2018, HUD suspended requirements under the 2015 rule for HUD grant recipient communities to submit assessments of fair housing. Additionally, as previously covered in InfoBytes, HUD solicited comments on amendments to the 2015 AFFH regulations, which, according to the agency, “proved ineffective, highly prescriptive, and effectively discouraged the production of affordable housing.” The proposed rule suggests a change to the definition of AFFH to “advancing fair housing choice within the program participant’s control or influence,” and seeks to move the focus away from anti-segregation planning and toward creation of affordable housing options.
According to the proposed rule, fair housing choice includes (i) “[p]rotected choice, meaning absence of discrimination”; (ii) “[a]ctual choice, meaning not only that affordable housing options exist,” but that state and local governments are encouraged to educate the public on their rights; and (iii) “[q]uality choice, meaning that the available and affordable housing is decent, safe, and sanitary, and, for persons with disabilities, accessible as required under civil rights laws.”
On March 27, the White House released a Memorandum on Federal Housing Finance Reform, which directs the Secretary of the Treasury to develop a plan to end the conservatorships of Fannie Mae and Freddie Mac (GSEs). Specifically, the memo states that the U.S. housing finance system is “in urgent need of reform,” as taxpayers are “potentially exposed to future bailouts” and programs at HUD have outdated operations and are “potentially overexposed to risk.” The President directs the Treasury and HUD to create specific plans addressing a number of reforms “as soon as practical.” Among other things, the directives include:
- Treasury to reform GSEs. With the ultimate goal of ending the conservatorships, the memo directs Treasury to develop proposals to, among other things, (i) preserve access to 30 year fix-rate mortgages for qualified homebuyers; (ii) establish appropriate capital and liquidity requirements for the GSEs; (iii) increase private sector participation in the mortgage market; (iv) evaluate the “QM Patch” with the HUD Secretary and CFPB Director; and (v) set conditions necessary to end conservatorships.
- HUD to reform programs. In addition to outlining specific objectives, the memo directs HUD to achieve three goals: (i) ensure that the FHA and the Government National Mortgage Association (GNMA) assume the primary responsibility for providing housing finance support for low income or underserved families; (ii) improve risk management, program, and product design to reduce taxpayer exposure; and (iii) modernize the operations of the FHA and GNMA.
Similarly, on March 26 and 27, the Senate Banking Committee held a two-part hearing (here and here) on housing finance reform. The hearing reviewed the legislative plan released by Chairman Mike Crapo (R-ID) in February. As previously covered by InfoBytes, the plan would, among other things, end the GSEs conservatorships, make the GSEs private guarantors, and allow other nonbank private guarantors to enter the market. Additionally, the plan would (i) restructure FHFA as a bipartisan board of directors, which would charter, regulate, and supervise all private guarantors; (ii) place a percentage cap on all outstanding mortgages for guarantors; and (iii) replace current housing goals and duty-to-serve requirements with a fund intended to address housing needs of underserved communities. In his opening statement at the hearing, Crapo said that, “approximately 70 percent of all mortgages originated in this country are in some way touched by the federal government” and “the status quo is not a viable option” for the housing finance market. Ranking Member Sherrod Brown (D-Ohio) emphasized that “any changes we consider must strengthen, not weaken, our ability to address the housing challenges facing our nation and make the housing market work better for families.”
Over the two days, the Senators and witnesses discussed the positive objectives of Crapo’s plan while recognizing hurdles that exist in implementing housing finance reform. While many Senators and witnesses expressed support for a requirement that private guarantors serve a national market, others suggested that regionalized or specialized guarantors could have advantages, including reaching underserved markets. Many Democrats stressed the importance of keeping a catastrophic government guarantee in place, while Republicans emphasized the need for legislative reforms to be implemented as soon as possible. With respect to equal access for small lenders, Senators discussed the concern over credit unions being able to sell loans in a multiple guarantor market.
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.
On April 6, the FDIC released the third volume of its Affordable Mortgage Lending Guide (Guide). The Guide is designed to help community bankers understand and compare various affordable mortgage-related programs, as well as their Community Reinvestment implications. This third installment of the Guide provides an overview of Federal Home Loan Bank programs designed to support single-family home purchases, such as down payment and closing cost assistance—many of which can be used in conjunction with other federal and state housing finance agency and government-sponsored enterprise programs. The Guide also provides alternatives for selling mortgages on the secondary market. As previously reported in InfoBytes, the first and second volumes in the series were published last year.
On November 3, the FDIC released the second volume of its recently-introduced Affordable Mortgage Lending Guide (Guide). The Guide is designed to help bankers learn about, and make comparisons of, available affordable mortgage-related programs, as well as their Community Reinvestment Act implications. This second installment of the Guide focuses on programs offered by and/or through state housing-related finance agencies across the country including, for instance, down payment and closing assistance, mortgage tax credit certificates, and homeownership education or counseling. The first volume in the series, released earlier this year, covered federal and GSE programs, and a third installment is expected to cover programs available through Federal Home Loan Banks.
House Republicans Urge FHFA Not To Direct GSEs To Start Contributing To Affordable Housing Funds Established By HERA
On April 2, House Financial Services Committee Chairman Jeb Hensarling (R-TX), joined by Congressmen Scott Garrett (R-NJ) and Ed Royce (R-CA), urged FHFA Director Mel Watt to continue the FHFA’s five-year-old policy of suspending contributions to the Affordable Housing Trust Fund and the Capital Magnet Fund. These two funds were established in the Housing and Economic Recovery Act (HERA) to direct a percentage of GSE profits into affordable housing using a mechanism that would be off-budget and thus not subject to the Congressional appropriations process. In January, more than 30 Democratic Senators pressed Mr. Watt to change course and lift the suspension. Given that the federal government owns $189 billion in outstanding senior preferred shares, the Republican House members believe that lifting the suspension would divert money from Fannie Mae and Freddie Mac that could be used to compensate taxpayers. They added that funding the affordable housing programs would violate the “letter and spirit of the Housing and Economic Recovery Act,” and would be premature given ongoing congressional deliberations over broader housing finance reform.
On March 16, Senate Banking Chairman Tim Johnson (D-SD) and Ranking Member Mike Crapo (R-ID) released long-awaited draft legislation to end the government’s conservatorship of Fannie Mae and Freddie Mac and reform the housing finance system. The Senators also released a summary of the proposal and a section-by-section analysis. The bill adopts many of the principles originally outlined in bipartisan legislation introduced last year by Senators Mark Warner (D-VA) and Bob Corker (R-TN). Like the Warner-Corker bill, the leadership proposal would create a Federal Mortgage Insurance Corporation (FMIC), modeled in part after the FDIC and intended to provide an explicit government backstop for certain MBS. The government backstop would sit behind private investors required to hold at least 10% capital on FMIC-issued securities. FMIC losses in turn would be backed by a reinsurance fund. The FMIC also would (i) oversee a new mortgage securitization platform; (ii) supervise guarantors, aggregators, servicers, and private mortgage insurers; and (iii) collect fees dedicated to support affordable housing and allocated among the Housing Trust Fund, the Capital Magnet Fund, and a new Market Access Fund. Under the bill servicers, aggregators, and others would be subject to capital requirements now only applicable to banks. The bill would establish a 5% down payment requirement for borrowers, 3.5% for first time borrowers. The bill also would create a jointly owned small lender mutual intended to provide small lenders access to the secondary market. The leadership’s small lender mutual would be open to more banks—any depository institution with up to $500 billion in assets—than the Warner-Corker plan would allow. The Committee is expected to markup the legislation in the coming weeks.
On January 24, Senators Warren (D-MA), Reed (D-RI), Boxer (D-CA), and 29 other Senate Democrats sent a letter to FHFA Director Mel Watt asking that he lift the suspension on funding for the National Housing Trust Fund (NHTF) and the Capital Magnet Fund (CMF), in “a manner fully consistent with all applicable laws, rules, and regulations.” The Senators assert that the number of homes that are affordable to renters with incomes at or below 30 percent of area median income has decreased by more than one million units since passage of the Housing and Economic Recovery Act in 2008, resulting in a national shortage of nearly five million units affordable and available to extremely low-income renters, and that funding the NHTF and CMF cannot wait for Congress to agree on broader housing finance reform.
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