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FHFA announces validation of FICO 10T and VantageScore 4.0 for GSE use
On October 24, FHFA announced the validation and approval of both the FICO 10T credit score model and the VantageScore 4.0 credit score model for use by Fannie Mae and Freddie Mac (GSEs). The agency also announced that the GSEs will require two credit reports from the national consumer reporting agencies, rather than three. According to the announcement, FHFA expects implementation of FICO 10T and VantageScore 4.0 to be a multiyear effort, but once in place, lenders will be required to deliver both FICO 10T and VantageScore 4.0 credit scores with each loan sold to the GSEs. FHFA noted that FICO 10T and VantageScore 4.0 are more accurate than the classic FICO model because they include payment history for factors like rent, utilities, and telecommunications. FHFA also released a Fact Sheet on the newly approved models, which “will improve accuracy, strengthen access to credit, and enhance safety and soundness.”
Freddie to consider bank account data in automated underwriting
On October 17, Freddie Mac announced that beginning November 6, borrowers’ bank account data will be included as part of its loan purchase eligibility assessments. This “industry-first capability” will be made available to lenders and brokers through Freddie’s automated Loan Product Advisor (LPA) underwriting system. “With the addition of positive monthly cash flow data, our underwriting system can help with more accurately predicting a borrower’s ability to pay their mortgage because it uses a comprehensive view of how personal finances are managed over time,” Freddie said in its announcement. “Our latest innovation levels the playing field and helps make homes more accessible to borrowers whose lenders might not have qualified them with traditional methods of underwriting. This should particularly help first-time homebuyers and underserved communities.”
Lenders and brokers must obtain borrowers’ permission in order to submit financial data showing 12 or more months of cash flow activity. Data may be obtained from checking, savings, and investment accounts, including those used for direct deposit of income and monthly bill payments, such as rent, utilities, and auto loans, Freddie said, stressing that “account data submitted can only positively affect the borrower’s credit risk assessment.” Lenders and brokers will also be able to obtain financial account data from designated third-party service providers through LPA’s asset and income modeler—the same automated process used to verify assets, income, employment, and on-time rent payments, Freddie explained. Additionally, LPA will advise lenders when a borrower may benefit from the submission of additional account data.
The announcement follows Freddie’s decision to start considering on-time rent payments as part of its loan purchase decisions to increase homeownership opportunities for first-time homebuyers. (Covered by InfoBytes here.)
FHFA proposes amendments to help GSEs better serve colonias
Recently, FHFA announced a notice of proposed rulemaking (NPRM) to amend its Enterprise Duty to Serve Underserved Markets regulation. Under Section 1129 of the Housing and Economic Recovery Act of 2008, Fannie Mae and Freddie Mac (GSEs) are required to develop loan products and flexible underwriting guidelines for facilitating “a secondary market for mortgages on housing for very low-, low-, and moderate-income families for the manufactured housing, affordable housing preservation, and rural housing markets.” The amendments would add a “colonia census tract” definition, which would serve as a census tract-based proxy for a “colonia” (as generally applied to “unincorporated communities along the U.S.-Mexico border in California, Arizona, New Mexico, and Texas that are characterized by high poverty rates and substandard living conditions”), and would amend the “high-needs rural region” definition by substituting “colonia census tract” for “colonia.” The NPRM would also revise the definition of “rural area” to include all colonia census tracts regardless of their location, in order to make GSE activities in all colonia census tracts eligible for duty to serve credit. “FHFA is committed to promoting affordability, equity, and sustainability in the nation’s housing finance markets, especially in underserved communities,” FHFA Director Sandra L. Thompson said in the announcement. “With this rule, we seek to remove barriers that have hindered the [GSEs’] Duty to Serve activities for people living in colonias.”
District Court rules in favor of FHFA on shareholders’ net worth sweep claims
On September 23, the U.S. District Court for the District of Columbia partially granted FHFA’s motion for summary judgment resolving claims brought by Fannie Mae and Freddie Mac (GSEs) shareholders in a lawsuit alleging the government exceeded its authority when it adjusted its Senior Preferred Stock Purchase Agreements (PSPAs) to allow net worth sweeps. The plaintiff shareholders claimed that FHFA acted outside its statutory authority when it adopted a third amendment to the PSPAs, which replaced a fixed-rate dividend formula with a variable one calculated on a quarterly basis (known as the “net worth sweep”). These sweeps, the plaintiffs contended, harmed their future dividend prospects. FHFA disagreed, arguing that the U.S. Supreme Court had already held in Collins v. Yellen (covered by InfoBytes here) that “the Third Amendment [to the PSPAs] was both authorized and a reasonable exercise of FHFA’s broad statutory power” and that “it is time to end this case.” With respect to the plaintiffs’ “remaining claim for breach of the implied covenant of good faith and fair dealing arising under Delaware and Virginia law,” the agency contended that the “Supreme Court unanimously held in Collins that FHFA—exercising its ‘expansive authority in its role as a conservator’—‘reasonably viewed [the Third Amendment] as more certain to ensure market stability’ than ‘the shareholders’ suggested strategy.’ … This holding alone forecloses Plaintiffs’ implied covenant claim.”
Following several years of litigation, the court granted FHFA’s motion for summary judgment “insofar as no genuine dispute remains on the fact of harm on the theory that plaintiffs were denied dividends that they otherwise were reasonably certain to receive, and insofar as plaintiffs’ proposed alternative remedy of rescission and restitution is barred as a matter of law.” However the court denied the motion “insofar as a genuine dispute of material fact remains on the fact of harm on the theory that plaintiffs’ shares lost much of their value, and in all other respects.” A memorandum opinion was filed under seal as it referenced documents filed under seal by the parties.
FHFA updates FAQs and clarifies Covid-19 tenant protections
On August 25, FHFA updated its Frequently Asked Questions (FAQ) regarding Fannie Mae and Freddie Mac assistance options for families impacted by the Covid-19 pandemic. Additionally, FHFA revised its “Tenant Protections for Enterprise-Backed Rental Properties in Response to COVID-19,” which is intended “to assist households that are unable to pay rent or utilities.” Among other things, the FAQs indicate that renters “living in a property financed by Fannie Mae or Freddie Mac have access to housing counselors with expertise in rental assistance programs and other programs to overcome financial hardships.” FHFA’s “Tenant Protections for Enterprise-Backed Rental Properties in Response to COVID-19,” clarifies and updates information for tenants in rental properties secured by a Fannie Mae or Freddie Mac mortgage.
FHFA to establish advisory committee on affordable, equitable, and sustainable housing
On August 23, FHFA announced plans to establish a federal advisory committee on affordable, equitable and sustainable housing. The committee’s activities will focus on Fannie Mae, Freddie Mac, and the Federal Home Loan Banks and “their respective roles in providing a reliable source of liquidity and funding to support housing finance in the single-family and multifamily housing markets.” The committee will provide advice and input regarding affordable, equitable, and sustainable housing needs, including barriers to accessing such housing and long-term sustainability, and will advise on any regulatory or policy changes necessary to address these matters. FHFA will solicit applications and nominations for memberships in an upcoming Federal Register notice and is seeking individuals engaged in the financing, development and/or administration of affordable, equitable, and sustainable housing and housing policy who have experience in areas such as fair housing, fair lending, civil rights, and single-family/multifamily lending and servicing.
FHFA, Ginnie Mae update minimum financial eligibility requirements for enterprise seller/servicers and issuers
On August 17, FHFA and Ginnie Mae released a joint announcement regarding updated minimum financial eligibility requirements for seller/servicers and issuers. Ginnie Mae also updated its requirements for servicers of Ginnie Mae mortgages in coordination with FHFA. According to the standards, sellers and servicers will be required to maintain a base net worth of $2.5 million plus 35 basis points of the unpaid principal balance for Ginnie Mae servicing and 25 basis points of the unpaid principal balance for all other 1-to-4-family loans serviced. Fannie and Freddie sellers and servicers would be required to maintain a capital ratio of tangible net worth to total assets that is greater than or equal to 6 percent. Depository institutions would continue to rely on their prudential regulatory standards to meet the GSEs’ capital and liquidity requirements. According to HUD Secretary Marcia L. Fudge, the standards “ensure that we continue to address the needs of underserved communities through easy, equitable and sustained access to mortgage credit.” FHFA also released FAQs regarding the seller/servicer minimum financial eligibility requirements, and Ginnie Mae released eligibility requirement comparison tables.
FHFA proposes new GSE multifamily housing goals
On August 16, FHFA announced a proposed rule regarding benchmark levels for the 2023 and 2024 multifamily housing goals for Fannie Mae and Freddie Mac (GSEs). According to the proposed rule, the GSEs will switch from using the number of units in multifamily properties financed annually by each institution to a new methodology of using the percentage of units financed. Instead of measuring the multifamily housing goals based on a number of units, the proposed rule would use the percentage of each of the GSE’s annual multifamily loan acquisitions that are affordable to each income category. FHFA acknowledged that the existing methodology does not incentivize the GSEs to continue to acquire mortgages backed by goal-qualifying units after the institutions have purchased enough mortgages to meet the minimum numeric benchmark levels. According to FHFA Director Sandra Thompson, the proposal “would ensure that each [of the GSE’s] focus remains on affordable segments of the multifamily market and reaffirms FHFA’s commitments to its statutory duty to promote affordability nationwide.”
FHFA to require servicers to maintain fair lending data
On August 10, the FHFA announced that Fannie Mae and Freddie Mac will start requiring servicers to obtain and maintain borrowers’ fair lending data on their loans. Data must transfer with servicing throughout the mortgage term, the announcement states, adding that beginning March 1, 2023, servicers will be required to collect borrower data including age, race, ethnicity, gender, and preferred language. The update follows an announcement issued in May (covered by InfoBytes here), which requires lenders to collect information on the borrower’s language preference, and on any homebuyer education or housing counseling that the borrower received, so that lenders can increase their understanding of borrowers’ needs throughout the home buying process. To facilitate the upcoming changes, Freddie Mac issued servicing Bulletin 2022-17, which outlines servicing requirements and notes that data elements must be stored in a format that can be searched, queried, and transferred. Simultaneously, Fannie Mae issued SVC-2022-06 to incorporate the new fair lending data requirements into its Servicing Guide. “Having fair lending data travel with servicing will help servicers do the important work of providing assistance to borrowers in need, helping to further a sustainable and equitable housing finance system,” FHFA Director Sandra Thompson said, adding that this need arose from the foreclosure crisis and Covid-19 response.
Senate Republicans urge FHFA to “abandon” equitable finance plans
On July 19, twelve Republican Senators wrote a letter to FHFA Director Sandra Thompson expressing their “many significant concerns” about “race-based housing subsidies” in the recently released Equitable Housing Finance Plans for Fannie Mae and Freddie Mac (GSEs). As previously covered by InfoBytes, in June, the GSEs released their Equitable Housing Finance Plans for 2022-2024 (available here and here), affirming their commitment to addressing racial and ethnic disparities in homeownership and wealth. The plans were developed following FHFA’s September 2021 request for public input, which invited comments to help the GSEs prepare their first plans and to aid FHFA in overseeing the plans (covered by InfoBytes here). In the letter, the Senators argued that the plans “raise significant legal concerns,” adding that “no law authorizes FHFA to use a GSE’s assets to pursue affirmative action in housing.” The Senators also wrote that the Biden administration “is conscripting the GSEs as instrumentalities of its progressive racial equity agenda to achieve outcomes it cannot achieve legislatively or even legally.” The Senators urged Thompson to “abandon” the plans and, “in anticipation of litigation challenging the legality” of them, requested that the GSEs “retain all correspondence with FHFA and other records relating to these plans.”