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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.”
FHFA launches Office of Financial Technology
On July 18, FHFA announced the establishment of the Office of Financial Technology to help address emerging fintech risks and priorities. The new office will support the agency in: (i) developing strategies for FHFA-regulated entities to advance safe, responsible, and equitable fintech innovation; (ii) sharing best practices related to fintech in housing finance; (iii) establishing outreach through regulated entities to promote awareness and understanding of fintech innovation; (iv) facilitating interagency collaboration and partnerships with other regulators; and (v) providing resources on innovation, general trends, and emerging risks in housing finance. The new office will also help develop strategies for Fannie Mae, Freddie Mac, and the Federal Home Loan Banks to advance fintech in a responsible manner.
The agency also issued a request for information (RFI) on the role of financial technology in housing finance and the risks and opportunities presented by technology throughout the mortgage lifecycle. Among other things, the RFI seeks feedback on ways the agency can “constructively interact with other stakeholders to facilitate responsible innovation, including the identification of any barriers to or challenges in implementing fintech in the housing finance ecosystem, while also focusing on supporting equity in the housing finance landscape for both homeowners and renters.” FHFA stated it also has an interest in understanding ways technology might automate and increase the effectiveness of compliance and regulatory processes (broadly referred to as “regtech”), commenting that “[r]egtech provides an opportunity to enhance transparency, consistency, and standardization of those processes, while reducing compliance costs.” Comments are due by October 16.
Freddie to consider rent payments in automated underwriting
On June 29, Freddie Mac announced that it will begin considering on-time rent payments as part of its loan purchase decisions to increase homeownership opportunities for first-time homebuyers. Starting July 10, with a borrower’s permission, mortgage lenders and brokers will be able to submit bank account data showing 12-months of on-time rent payments through Freddie’s automated underwriting system. According to Freddie, bank account data will be “obtained from designated third-party service providers using the same automated process used to verify assets, income and employment” using its asset and income modeler. Freddie explained that eligible rent payment data includes checks, electronic transactions, or digital payments made through specific payment apps. “These automated capabilities provide greater efficiencies to lenders and allows them to deliver a better borrower experience while continuing to meet Freddie Mac’s strong credit underwriting standards,” the announcement said. Additional requirements for submitting rent payment data to Freddie’s underwriting system will be announced in an upcoming July Single-Family Seller/Servicer Guide Bulletin.
Fannie and Freddie release updated guidance on credit score coding glitch
On June 24, Fannie Mae and Freddie Mac issued additional guidance related to a coding issue that impacted approximately 12 percent of credit scores earlier this year. As previously covered by InfoBytes, a consumer reporting agency informed lenders and industry members that it experienced a coding issue when it changed some of the technology to its legacy online model platform.
After making a determination that the underlying credit report data errors resulting from the coding issue “are not considered to be material erroneous credit data errors under Selling Guide B3-2-09,” Fannie Mae issued LL-2022-02 to provide requirements applicable specifically to impacted loans. Specifically, lenders are not required to obtain an updated credit report and re-underwrite the impacted loan “by resubmitting the loan to Desktop Underwriter® (DU® )” nor are they required to “re-assess the underwriting decision for non-DU loans, based solely on this issue.” An inaccurate credit score used at the time of underwriting will not render the loan ineligible for purchase, Fannie Mae stated, adding that a “repurchase request will not be issued based solely on this issue.” Guidance related to obtaining corrected credit scores and making data corrections, as well as information concerning loan-level price adjustments, post-closing quality control review, and representation and warranty relief is also provided in the lender letter.
Freddie Mac issued Bulletin 2022-14 to provide similar guidance to sellers about their credit reporting and data correction responsibilities, and stated that it will also “not issue a repurchase based solely on an inaccurate credit score used in the underwriting of a mortgage.”
The guidance is effective immediately.
GSEs issue Equitable Housing Finance Plans
On June 8, Fannie Mae and Freddie Mac (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). Among other things, the plans (which will be updated annually) include activities to (i) address future consumer education initiatives for renters and homeowners; (ii) help tenants build credit profiles and enable better access to financial services; (iii) expand counseling services to support housing stability; (iv) launch technology to increase access to sustainable credit and fair home appraisals; and (v) deploy Special Purpose Credit Programs to address barriers to sustainable homeownership, focusing particularly on consumers living in formerly redlined and underserved areas with majority Black populations. FHFA’s press release also announced the establishment of a new pilot transparency framework for the GSEs, which will require Fannie and Freddie to publish and maintain a list of pilot programs and “test-and-learn activities” on their public websites to help FHFA determine whether such activities address disparities identified in the plans.
Earlier in the week, FHFA released its inaugural Mission Report describing housing finance activities taken in 2021 by the GSEs and Federal Home Loan Banks related to targeted economic development and affordable, equitable, and sustainable housing. The report highlighted, among other things, that the gap between mortgage acceptance rates for minority and white borrowers “remains persistent,” with Black and Latino borrowers representing 6.3 percent and 14.2 percent of all mortgages purchased by the GSEs, respectively, in the fourth quarter of 2021. The report also discussed fair lending geographical trends as well as data on multifamily and single-family loan acquisitions.
Coding glitch hits credit scores
Recently, a consumer reporting agency (CRA) informed lenders and industry members that it experienced a coding issue when it changed some of the technology to its legacy online model platform. As a result of the issue, the CRA advised that the miscalculation impacted approximately 12 percent of credit scores, although credit reports were not affected.
In response, on June 1, Fannie Mae issued a notice regarding the coding error. Fannie Mae reminded lenders “of their obligations under the Selling Guide to correct erroneous credit data, ensure the accuracy of the credit data submitted to Desktop Underwriter® (DU® ) at the time of loan sale, and to provide any corrected information to us.” Freddie Mac issued a similar notice advising lenders of their credit reporting and data correction responsibilities. Both Fannie Mae and Freddie Mac are monitoring the situation and may issue additional guidance regarding the coding issue.