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Fannie and Freddie announce tenant protection policy framework
On August 28, Fannie Mae and Freddie Mac (GSEs) each published a multifamily tenant protection policy framework to require minimum lease standards at multifamily properties financed by new enterprise-backed loans. Introduced by the FHFA in July, the policies will take effect in February 2025 and will include (i) a five-day grace period for rent payments, (ii) a 30-day notice for rent increases, and (iii) a 30-day notice of lease expirations.
According to Freddie Mac’s announcement, the GSEs collaborated with the FHFA to review state landlord-tenant laws and engaged stakeholders to identify best practices. Findings from Freddie Mac’s National Survey of Tenant Protections were also considered. Additionally, the GSEs published FAQs related to the standards and an initial policy grid or policy framework that outlined their policy, applicability, updates to loan documents, implementation requirements for borrowers, and monitoring and enforcement details.
FHFA approves Freddie Mac's second mortgage pilot
On June 20, FHFA conditionally approved a limited pilot program for Freddie Mac to begin purchasing certain single-family closed-end second mortgages. This decision came after implementing a new approval process for products from Freddie Mac and Fannie Mae, which became effective in April 2023. The pilot will determine if the new mortgage product “advances Freddie Mac's statutory purposes and benefits borrowers, particularly in rural and underserved communities.”
FHFA's approval will set specific limitations for the pilot, including (i) a $2.5 billion cap on purchases; (ii) a maximum duration of 18 months; (iii) a maximum loan amount of $78,277, (in alignment with the CFPB’s Qualified Mortgage criteria); (iv) a 24-month “seasoning period” for the first mortgage; and (v) a restriction to primary residences only. Following the pilot, the FHFA will evaluate its success and effectiveness. Any proposed expansion or conversion of the pilot into a regular program will require a new round of public comments and FHFA approval, based on the pilot's initial outcomes.
FHFA enhances Fannie and Freddie flex modification policies
Recently, the FHFA announced that Fannie Mae and Freddie Mac will update their Flex Modification policies to help struggling borrowers reduce their mortgage payments. Flex Modification would be for eligible borrowers experiencing a permanent hardship and cannot make regular monthly mortgage payments. According to the FHFA, the enhanced policies will aim to decrease a borrower’s monthly payments by up to 20 percent through three incremental steps: (i) interest rate reduction; (ii) extending the loan term; and (iii) principal forbearance for those with loan-to-value ratios above 50 percent. These updates were built on the Servicing Alignment Initiative started in 2011 and have been aimed at better resolving mortgage payment delinquencies. The new Flex Modification policies will take effect on December 1.
FHFA shares ‘lessons learned’ from evaluating exposure to climate-related risks
On May 1, the FHFA released a report covering the “lessons learned” from its review of the Climate Scenario Analysis (CSA) which was used by financial institutions and regulators to evaluate exposure to climate-related risk. Climate-related risk can be categorized in two ways: (i) physical risk which is damage to property, land, and infrastructure due to severe weather and environmental changes; and (ii) transition risk that results from policy and technological shifts towards a low-carbon economy.
In its preliminary CSA exercises, the FHFA made the following key observations:
- Data and Methodology Limitations: There were data limitations and methodological shortcomings as current tools depend on incomplete data.
- Modeling Assumptions: Results were significantly impacted by modeling assumptions.
- Challenges with Existing Credit Models: Current credit loss models were constrained while incorporating climate risks.
- Predictive Inaccuracy: The tools used to estimate the historical relationship between climate-related events and financial impacts may not be representative of future financial impacts.
The FHFA concluded that these findings indicated the CSA a complex process with room for enhancement and that no single risk assessment can fully capture the breadth of potential impacts from climate-related physical and transition risks.
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.
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 updates for implementation of GSE credit score requirements
On February 29, FHFA announced updates related to the implementation of new credit score requirements for single-family loans acquired by Freddie Mac and Fannie Mae (GSEs). As previously covered by InfoBytes, FHFA released a two-phase plan for soliciting stakeholder input on the agency’s proposed process for updating credit score requirements. The new process, called the FICO 10T model, will, among other things, require two credit reports (a “bi-merge” credit report) from the national consumer reporting agencies, rather than the traditional three (covered by InfoBytes here). After considering stakeholder input, FHFA expects to transition from the Classic FICO credit score model to the bi-merge credit reporting requirement in Q1 2025. The GSEs will also move up the publication of VantageScore 4.0 historical data to Q3 2024 “to better support market participants” and provide pertinent historical data before the transition. FHFA will provide more details on the timing for FICO 10T implementation once this initial process is complete.
Fannie, Freddie release an updated Single-Family Social MBS Framework
On January 23, Freddie Mac and Fannie Mae (the “Enterprises”) announced an updated Single-Family Social MBS and Corporate Debt Bonds Framework, and updates to mortgage-backed securities (“MBS”) disclosures. As part of the framework updates, the Enterprises will rename the Social Index to the “Mission Index” in February. Additionally, Fannie Mae will update the formulation of the index in February, and Freddie Mac will update the formulation of the index in May. The Mission Index offers MBS investors insights into the Enterprises’ mission-oriented lending initiatives, enabling investors to allocate capital towards those activities. The revised Mission Index will apply to pools issued by Fannie Mae starting in March and for Freddie Mac starting in June.
The updated frameworks define criteria beginning in June for the Enterprises’ mortgage collateral that may be pooled, issued and labeled “Social MBS.” That label is applied when the Mission Index score of the underlying pool exceeds a specified threshold. The Enterprises also announced they plan to provide impact reporting annually beginning in 2025, “which will help the market understand the associated impact of the loans underlying their investments.”
Freddie Mac launches pilot program on loan repurchase alternatives
On January 1, Freddie Mac is launching a pilot program intended to improve the quality of performing loans for sellers. This pilot program, titled “Fee-Based Repurchase Alternative for Performing Loans,” is the fourth initiative from Freddie Mac’s Pilot Transparency programs, which included pilot programs on appraisal modernization, shared equity conversion, and asset and income modeler for direct deposits. This fee-based repurchase alternative pilot program for 2024 focuses on replacing Freddie Mac’s current repurchase policy for defective performing loans. “[L]enders will not be subject to repurchases on most performing loans and will instead be subject to a fee-based structure based on non-acceptable quality (NAQ) rates.” According to Freddie Mac, the fee-based structure will be more efficient and transparent and rewards lenders that deliver high-quality loans. Freddie Mac also notes that loans that are non-performing in 36 months or have life of loan defects could be repurchased. The pilot program is active; accordingly, the fee structure will begin rolling out in early 2024 to targeted lenders.
Freddie Mac standardizes down payment assistance programs
On December 4, Freddie Mac announced new, standardized mortgage documents aimed at of making down payment assistance (DPA) programs more accessible nationwide. According to Freddie Mac, the subordinate lien programs for DPA programs have been specific to particular housing finance agencies which created confusion. By standardizing these documents, Freddie Mac hopes to benefit lenders by making DPA programs more efficient.
To create the standardized documents, Freddie Mac partnered with Fannie Mae and state housing finance agencies. These documents will initially be available for 19 states, and eventually for all 50 states and the District of Columbia. These changes come in tandem with Freddie Mac’s new tool, DPA One®, to aggregate and showcase down payment assistance programs on a single platform.