Housing Policy Council Archives

Apache is functioning normally

May 31, 2024 by Brett Tams

In a largely anticipated move following weeks of criticism from its director, the Consumer Financial Protection Bureau issued an inquiry to examine the impact mortgage closing costs and fees have on borrowers.

In the past several months, CFPB Director Rohit Chopra has issued a stream of comments questioning the fairness of various housing related charges to consumers and other expenses he collectively deemed “junk fees.” But the request potentially foreshadows future CFPB rulemaking that might impose limits on what can be charged, according to some legal experts.

Among the items Chopra has criticized are interest rate buydowns, property inspections and title insurance.

“Junk fees and excessive closing costs can drain down payments and push up monthly mortgage costs,” said CFPB Director Rohit Chopra, in a press release. “The CFPB is looking for ways to reduce anticompetitive fees that harm both homebuyers and lenders.”

During a May speech at a leading mortgage industry conference, Chopra directed criticism at the credit reporting industry for steep increases in fees for score data. In those same remarks, he called out prices for employment verification services, and said that many of the fees charged to consumers still amounted to unreasonable and unfair burdens on consumers warranting examination even when disclosed upfront.

In its latest announcement, the bureau again singled out charges related to credit scores and title insurance. The request for information, or RFI, asked for public comment specifically addressing fees that are currently subject to competition, how they are set and if they have changed in recent years.

“Even if disclosed, borrowers are compelled to pay the fees and may have no control over cost. In 2022, median closing costs were $6,000, and these fees can quickly erode home equity and undercut homeownership,” the CFPB said.

Comments are open until Aug. 2 and can be made by email or through the federal government’s eRulemaking portal.

Chopra finds himself regularly at odds with many in the mortgage industry, and the CFPB’s inquiry quickly garnered a mix of reactions ranging from praise to disapproval among industry stakeholders. While trade groups have characterized the CFPB’s actions as overregulation that display a lack of understanding about the way the mortgage process works, some lenders also appreciate the efforts to drive down costs that negatively impact their bottom line.

The Community Home Lenders of America welcomed the inquiry “for highlighting third-party mortgage service provider junk fees, which can harm consumers and reduce access to homeownership,” according to its executive director, Scott Olson

“In particular, we are pleased the CFPB focused on two areas of concern to our members, credit scoring and title insurance,” Olson also noted in a press release.

But a consortium of industry trade groups, including the Mortgage Bankers Association, Housing Policy Council and American Bankers Association pointed out many of the fees questioned by the CFPB were required by federal statutes and other regulators as a condition of buying and insuring loans. Many of the rules currently in place received the stamp of approval from the CFPB, they added.

“The industry invested considerable resources to implement these new rules just a decade ago,” a joint statement read.

“If the CFPB is now modifying its previous position and is considering changing this complex regulatory disclosure regime, a rule-making process governed by the Administrative Procedure Act — and supported by a robust cost-benefit analysis — is the only appropriate vehicle to initiate that work,” the trade groups said.

“Given the significant home-price appreciation and swift inflation that consumers have encountered in recent years, a discussion about policies that address affordability burdens while maintaining healthy and competitive mortgage markets makes good sense,” they added.

Meanwhile, the American Land Title Association, which finds itself in the public eye after the announcement of a pilot program aimed at reducing borrower expenses that could offer alternatives or waivers to its products, also took issue with the “junk fee” label but said it appreciated the opportunity to educate federal agencies the value its members provided.

“Fees for title insurance and other closing costs must be provided and disclosed to consumers under a federally mandated rule that the CFPB itself developed in 2015,” ALTA said in a statement. “Lumping title insurance and settlement services into the category of ‘junk fees’ conflicts with the White House’s own definition, which cites the lack of disclosure of the fee being charged.”

But analyst Bose George of Keefe, Bruyette & Woods said any changes related to title insurance charges would only occur in the event of a second Biden presidential term and may not result in major changes, given the CFPB’s role in creating current regulations.

“We think a change like this, which might just move the title cost into the mortgage rate and effectively be passed on to the borrower in that sense, might not warrant a wholesale change to the closing process,” George said.

Attorneys serving the mortgage industry took a harsher tone toward the CFPB, with Richard Horn, co-managing partner of Garris Horn raising a red flag for the home finance community in a blog post.

“It appears to be an attempt to create an administrative record for a future rulemaking that substantively restricts closing costs in some way,” he wrote.

Meanwhile, Peter Idziak, senior associate to Polunsky Beitel Green, claimed the CFPB was engaging in some “sleight of hand” in its announcement, particularly when it came to labeling rate discount points as junk fees.

“It’s not surprising that more borrowers are choosing to pay points with interest rates more than double what they were in 2021, but it’s misleading for the bureau to lump these voluntary costs in with fees that are truly unavoidable,” Idziak said in a statement.

At the same time, Idziak said the CFPB deserved some of the blame for the current state of housing costs.

“A more accurate title of the CFPB’s press release could be, “Well, Well, Well, If it isn’t the ‘Consequences of My Own Actions.’ Completely absent from the bureau’s request for information is any acknowledgment that increasing and overburdensome government regulations and actions by FHFA as conservator of Fannie and Freddie have increased costs of doing business substantially for lenders.”

Source: nationalmortgagenews.com

Apache is functioning normally

May 27, 2024 by Brett Tams

On Wednesday, the FHFA closed the comment period for the proposal, which was opened in April. In their letter, Republicans called the 30-day period “insufficient.”

If the product is approved as proposed, it will have terms of up to 20 years, be manually underwritten and remain in Freddie Mac’s portfolio for six to nine months until second mortgage non-TBA-guaranteed securities are created.

Republicans on the Senate Banking Committee, along with 23 members of the House Financial Services Committee, signed the letter sent to FHFA Director Sandra Thompson that indicated “political purposes” for creating the new product.

“We are deeply concerned that the proposal is a thinly veiled attempt by the Biden administration to offset the effects of excessive fiscal spending and tight monetary policy as the November election approaches,” the letter states.

“The sole purpose of the FHFA’s conservatorship of the GSEs is to restore their soundness and solvency so they can fulfill their statutory missions — under no circumstances should the FHFA’s ultimate authority as a conservator be exploited for political purposes. The GSEs are already the largest mortgage guarantors in the country; expanding their roles as consumer loan guarantors is a significant step in the wrong direction.”

An FHFA spokesperson told HousingWire that the letter had been received and the agency “will respond appropriately.”

According to the letter, second mortgages are consumer loans that finance spending and consumption, counteracting the effects of tighter monetary policy and worsening inflation for Americans.

Strategists at Bank of America estimate the product could unlock $850 billion in origination volume.

Freddie Mac’s head of single-family acquisitions, Sonu Mittal, told HousingWire this week that the product “will provide borrowers an alternative to the cash-out refi.”

“The thing I keep trying to tell folks is that this is not HELOC; this is not piggyback where you can do first and second, and this is not open to all first-lien mortgages in the country. It’s only if you have a Freddie Mac first mortgage. So, when you start slicing it with all those different cuts, it’s a different sizing or opportunity that exists.”

Members of Congress are also concerned that the proposed Freddie Mac product will crowd out private capital while expanding the GSE into other credit markets. Groups such as the Mortgage Bankers Association (MBA), the U.S. Mortgage Insurers (USMI) and the Housing Policy Council (HPC) highlighted the same concerns in comments to the FHFA.

“The proposed product will primarily help homeowners who possess meaningful equity in their homes and have already gained from the 68.9% increase in home prices since the pandemic,” the letter states.

“It offers no benefit to renters or homeowners who lack meaningful equity, such as first-time homebuyers. In fact, the proposal is likely to adversely affect these Americans through its broader inflationary impact on the economy, as well as by exacerbating the rate lock-in effect, the adverse effects of which were reported on by the FHFA earlier this year.”

Source: housingwire.com

Apache is functioning normally

May 25, 2024 by Brett Tams

Enjoy complimentary access to top ideas and insights — selected by our editors.

Coming out of the Mortgage Bankers Association Secondary Conference, the big topic of conversation was the price being paid for mortgage servicing rights. As it becomes clear that the Fed is going to take longer to drop the target for fed funds, lenders face decisions about expenses and markets. And a drop in the short end of the yield curve may not mean lower 10-year Treasury yields.

Goldman Sachs’ CEO Officer David Solomon expects the Federal Reserve to not cut interest rates this year because the country’s economy has proved to be more resilient. But JPMorgan CEO Jamie Dimon has repeated his warning from last year that the consumer is running low on cash and will roll over next year. We’ll see. Default rates on prime 1-4s are still near zero, but FHA is at 10%.

In an earlier comment in The IRA blog, we recounted how several industry leaders are buying up mortgage servicing rights at a brisk clip, with bids at least half a multiple above the market. The reason for this intense interest in MSRs is a desire to build income generating assets for a tepid loan market ahead. Winter has come. Think of MSRs as acorns with leverage.

The excellent analysis published by Ginnie Mae in the Global Markets Analysis Report shows that the average coupon for government MBS is about 3.6%. The average loan coupon in a pool is a point above the debenture rate. Natural portfolio runoff will take many more years to rebalance the equation for lenders by getting the average MBS coupon closer to a five handle than a three APR. The on-the-run MBS coupon today for loans sold into the TBA market is a 6% contract.

Because the industry did extraordinary amounts of business in 2020 and 2021, today the market is light a trillion dollars or so in theoretical mortgage production. But we cannot spend theoretical money to meet real expenses. Firms which habitually sell their MSRs to offset operating losses are likely to face a tough road ahead. No acorns for the long cold winter in Michigan.

It will be no surprise to readers that there are a couple of initiatives being pursued in Washington to boost loan production, but not all of them necessarily make sense for consumers. Freddie Mac has proposed the purchase of single-family closed-end second mortgages. It will only purchase a second mortgage “if it currently owns the first mortgage in order to assist with servicing and risk oversight,” says the smallest GSE.

My firm submitted comments on the proposal, which is opposed by the MBA and a surprising number of other industry trade groups and think tanks. The Structured Finance Association (SFA) and American Bankers Association both opposed the proposal, noting that non-agency outlets are already providing enough liquidity for seconds. The ABA also questioned Freddie Mac’s motivations for a proposal to acquire seconds.

Our contacts in the non-QM market like the private product, but complain about the small number of customers. We worry that using a government guarantee to lure consumers who cannot do business with a bank is bad policy. To make sense under the GSE risk pricing methodologies, a closed-end second has to have a coupon near 10% or more. The private market today is low to mid-teens.

A mortgage REIT CEO told NMN: “Re-levering the taxpayer to utilize excess capital instead of doing something mission-focused with the money is bad boy behavior. We’ll look back in five years and wonder again how we got here. That said, the fix seems to be in at FHFA and this is going to happen, so we are positioning accordingly.”

Meanwhile over at the FHA, a proposal from the Housing Policy Council would allow closing costs to be rolled into the principal of refinanced loans. Erica Adelberg of Bloomberg Intelligence says proposals for the FHA to modify its streamlined refinancing program to make it more similar to that for VA loans might increase prepayment risks for Ginnie Mae MBS, impacting investors.

While there may be higher levels of prepayments, the most recent data from Ginnie Mae shows that yield spreads on MBS have widened considerably since the Fed increased interest rates, more than compensating investors for the change.

Several government lenders tell NMN that allowing the borrower to finance the closing costs helps borrowers get into a better financial position, is cheaper and helps them stay in the FHA program.

“Keeping borrowers in the FHA means they will continue to contribute to the MIP program vs. shift to a GSE conforming loan,” argues the industry lender. “Low income borrowers in underserved communities are better off in the FHA program. The catch is Ginnie Mae would need to waive any prepay violation.”

A number of readers of NMN are probably thinking right now about the fact that the FHA and Ginnie Mae have recently been vocal about rising prepayment rates. It was only in April that Ginnie Mae admonished issuers to be aware of rising prepayment rates. But now the FHA seems to be leaning in the direction of adopting changes that will increase prepayments.

“Completing a rate and term refinance can be beneficial to both homeowners and FHA alike,” HPC head Ed Demarco wrote in a May 21, 2024 letter. “The typical rate and term refinance reduces the borrower’s monthly mortgage obligation, and the borrower can use the savings to increase consumption or pay off other debts.”

According to the Urban Institute, the Federal Housing Administration should adopt a streamlined refinancing program because it can reduce defaults and foreclosures, and make loans safer for investors and guarantors.

We like the idea of helping low-income borrowers access the cash that they need within the existing first-lien mortgage product. The FHA market is not risk priced, thus low-income and first-time home buyers almost always find better rates in the government market. Astute lenders can make a decent profit, avoid the putback risk found in the conventional market and retain the MSR.

As we note in our comment letter on the Freddie Mac proposal, a loan officer acting in the best interest of a low-income consumer might recommend a 15-year floating rate refinance loan vs. a second lien so as to eliminate the mortgage debt faster. A second lien mortgage with a double digit coupon and a higher probability of default does not strike us as a very good deal for the consumer or the taxpayer. Doing a cash-out refinance for a consumer into a new, 15-year FHA loan makes a lot of sense to us.

Source: nationalmortgagenews.com

Apache is functioning normally

May 8, 2024 by Brett Tams

The Department of Veterans Affairs previously released a deadline with some leeway for a transition from a voluntary foreclosure suspension into a new loss mitigation program, where appropriate; but trade groups still want more time.

The Housing Policy Council and Mortgage Bankers Association in a letter released late last week asked for the VA to “extend the mandatory compliance date beyond Oct. 1” citing a need for more guidance related to the Veterans Affairs Servicing Purchase program.

The two groups specifically called for more direction “around loss mitigation and servicing transfers” as “critical components of the work that remains to prepare the program for implementation.”

They’re also awaiting a response to a request for regular meetings with the VA as part of the process.

Once those steps are in place, implementation could take six months, the trade groups said.

The VA said that it has been and will continue to work closely with the industry as it has throughout the development of the program, which allows the department to purchase defaulted loans from servicers, modify them and place the mortgages in its portfolio to prevent foreclosures.

“VA was present at numerous industry events, to include those held by the Mortgage Bankers Association, to discuss the upcoming VASP program. The goal of our efforts and external communications has been to provide transparency while creating an affordable alternative to foreclosure that benefits veterans, the Federal government and the taxpayer. Many program improvements to VASP were informed by those valued discussions,” the department said in an emailed statement.

Around 40,000 veterans have been affected by the discontinuation of a temporary partial-claim program from the pandemic in October 2022. These distressed borrowers have been awaiting VASP’s setup as the successor to the partial claim.

The VA wants mortgage servicers to be responsible for identifying borrowers eligible for the program, making them central players in its implementation.

Servicers will “try to implement VASP as soon as possible,” even though they have the aforementioned reservations about the timeline, according to the two groups. They support “an extension of the voluntary foreclosure moratorium to align with the effective date.”

“VA will continue to work with the industry, to include training and discussions, to address any questions regarding implementation,” the department said. “Please note, although VA is available to take VASP loans on May 31, servicers have until Oct. 1 to comply. We expect servicers to explore all options for home retention prior to foreclosure, to include VASP. This could mean placing a loan in a special forbearance until the servicer can submit the loan for VASP consideration.

“We look forward to our continued work with industry partners and have confidence in them to deliver VASP to eligible Veterans.”

Meanwhile, the nature of the VA’s partial guarantee persists as an issue that complicates its efforts to provide manageable foreclosure prevention, the Housing Policy Council added in a separate letter to two senators.

In the letter to Democratic Sen. Jon Tester of Montana and Republican Sen. Jerry Moran of Kansas, HPC asked for more to be done to address the issue in the Veterans Housing Stability Act of 2024, a bill introduced earlier this year.

Tester is the chairman of the Senate Committee on Veterans Affairs. Moran is the ranking member of that committee.

The council showed concern that the current bill’s proposal to restore the partial claim used in the pandemic runs into an issue the VA cited in originally discontinuing it: it introduces “additional VA risk exposure” that “is not budget neutral.”

The department has said VASP “will result in a government subsidy reduction of approximately $1.5 billion from 2024 to 2033 because it’ll cost less to purchase loans through the program than it would to go through the foreclosure process.

The HPC suggested a measure in the bill that could “make the VA’s powers more like those of the Federal Housing Administration” might address issues resulting from the former’s 25% guarantee

However, the council acknowledged the two are far different due to the FHA’s 100% insurance, which makes doing this challenging.

VASP, while different in structure and implementation from the administration’s new payment-supplemental partial claim, has a similar goal to address difficulty modifying loans for affordability purposes given differences in current and originated mortgage rates.

Something needs to be done to change the current approach because the current delay in the foreclosure process “increases a veteran’s indebtedness, adds to VA’s mortgage credit risk, and imposes a liquidity burden on servicers,” the council said.

Source: nationalmortgagenews.com

Apache is functioning normally

November 23, 2023 by Brett Tams

The Federal Housing Administration’s latest version of a proposed vehicle for helping distressed borrowers with older loans obtain affordable payments responds to some key industry requests.

Notably, it reduces what would have been a complicated claim process for mortgages the FHA insures when the strategy gets used, in line with a previous ask for simplification from trade associations, according to the Housing Policy Council.

“This is probably the most significant change: They were going to have servicers submit multiple and ongoing claim submissions, and they’ve moved to a one-time submission,” said Matt Douglas, senior vice president, mortgage policy, HPC.

The term of the redrafted payment-supplement partial claim also no longer includes a complicated set of rules for the remuneration period, which is now set at three years as housing finance organizations had requested.

“It previously had been pretty complex,” said Pete Mills, senior vice president of residential policy and member engagement at the Mortgage Bankers Association.

The FHA did not raise incentives connected with the foreclosure prevention strategy the way some advocates hoped, but with the process for claims streamlined, they were reconsidering their position on what type of payments would be appropriate at deadline.

“This is going to require less work. We need to take a look at what’s a reasonable request for an incentive. That’s an open question. I don’t think we have developed a position on that yet,” Douglas said.

The administration has promised not to move ahead on the proposal without reviewing another round of feedback, which is due by Dec. 7.

“This one was particularly complicated. We’re very appreciative we got back to the drafting table one more time, even with a short turnaround,” Mills said. “I give the FHA a fair amount of credit for using the drafting table, not just for this, but in general. I think it results in better policy.”

The FHA would now like to implement the PSPC within nine months of finalizing it. That’s more than the six months previously floated but less than the year residential entities originally sought.

“I think it’ll probably include the option to implement sooner, in cases where you can’t, this certainly addresses some of the challenges of getting this built into the permanent FHA loss-mitigation waterfall,” Mills said.

There’s a balance that should be struck between meeting borrower needs for the PSPC that exists under current market conditions, and the need for the industry to have enough bandwidth to take all the steps required to make sure it’s operationally effective, Douglas said.

“A loss mitigation offering that works more effectively in a high interest rate environment is a tool that we think FHA needs. However, this is a novel, untested concept that we want to make sure we get it right,” said Douglas.

The vehicle for the payment-supplement partial claim is a subordinate lien. That avoids a modification of the first lien that would create a need to adjust the loan to the higher market rate.

“There’s a second lien in favor of HUD that secures the repayment of the amounts that HUD has extended to bring the loan current,” said James Wright Jr., a partner that represents banks and other financial services companies at Bradley, a national law firm.

“It’s a 0% loan but it does have to be paid off either when it’s refinanced or when the property is sold,” he added, noting that if the loan does extend out to its full term the borrower may have a balloon payment at the end.

One thing the FHA has not produced yet, but servicers would like to review, are certain documents involved.

“We do think that’s an important step so that we understand: What does the model note look like? What does the model borrower agreement look like? What does the rider to the note look like? We have asked for them to publish that and they have not yet,” Douglas said.

Source: nationalmortgagenews.com

Apache is functioning normally

August 18, 2023 by Brett Tams

The latest revamp of loan fees at government-sponsored enterprises Fannie Mae and Freddie Mac drew its share of critics, leading their regulator to ask whether it should rethink the capital framework driving them — and it looks like the answer, in some cases, is yes.

To be sure, many critics, including Republican legislators who’ve sought to roll back the latest pricing change, have balked at the idea of overturning loan-level risk-based pricing in response. But not everyone has, and comment letters released recently confirm there are mixed opinions.

Specifically, some affordable housing advocates are reprising past calls for a return to an alternative used prior to the Great Recession: a flat guarantee fee based on portfolio-based cross-subsidization rather than the current loan-level tradeoffs.

“We do not support risk-based pricing at the loan level by the enterprises,” said David Dworkin, president and CEO of the National Housing Conference, expounding on the view in his group’s letter to Fannie and Freddie’s regulator.

“That’s different from private mortgage insurance, which involves risk-based pricing. We have no objection to risk-based pricing at the portfolio level,” Dworkin clarified. “We’re not against risk-based pricing, we’re against individual consumers paying for their own risk.”

The most recent pricing changes were well intended, but the GSEs shouldn’t “pick winners and losers” among borrowers if it involves charging those with less income higher fees, potentially driving to the neighboring government-backed market and increasing taxpayer risk, he said.

And while by one measure used by the GSEs, the Enterprise Regulatory Capital Framework, they are undercapitalized, the NHC said more realistic measures like stress tests suggest there’s room to reduce capital enough to have a lower (but not excessively reduced) flat g-fee.

The letter references a recent stress test measure that shows that the largest loss the GSEs would take in a “severely adverse” scenario (with allowances for deferred tax assets) included is $8.4 billion. It contrasts it with the 2021 ERCF goal of roughly $319 billion in adjusted capital.

“Even if the losses from a future crisis with five times the impact of the 2008 financial crisis were to occur, costing the enterprises a total of $42.25 billion, under the ERCF they would be required to hold $276.75 billion in unnecessary capital,” the letter said.

The ERCF goals are based more on what capital enterprises might need if they were released from their government conservatorship, and measured more by private market standards, whereas the stress tests aim to model likely risk on the enterprises in current form.

Dworkin called the ECRF number “extremely excessive.

“They’re comparing them to a bank capital, but mortgages are a very small piece of what banks do and capital requirements for banks are really driven by much bigger investments that have much higher risk than mortgages,” said Dworkin.

Dworkin also opposes a separate regulatory proposal that would increase risk weightings for some mortgages that have higher loan-to-value ratios and are held in bank portfolios.

Following the Great Recession, the GSEs downsized their portfolios and shifted their focus to securitizations. Because of this, and rules that now hold lenders responsible for the borrower’s ability to repay, Dworkin thinks the previous flat g-fee model wouldn’t have the risks seen in ’08.

But other respondents to the FHFA’s request for input disagree.

“The cross-subsidization model, with full flat-pricing, does not work and was one factor in the failure of Fannie Mae and Freddie Mac in 2008,” Ed DeMarco, president of the Housing Policy Council and a previous acting director of the FHFA, said in a letter to the agency.

“It creates market distortions, encourages inappropriate risk-taking, and misleads consumers by removing beneficial pricing signals,” he added.

DeMarco upheld the current capital framework at the enterprises but, like Dworkin, was critical of the proposed changes to bank standards.

While a kerfuffle has arisen over some of the most recent revisions to pricing at the GSEs, most notably a proposed debt-to-income-based differentiator that they eventually dropped, DeMarco indicated some types of loans are appropriate to apply a premium too, subsidizing others.

“Loans that are neither central to Fannie Mae and Freddie Mac’s public mission and that are capable of obtaining private sector financing may be suitable for higher targeted returns,” he said.

Cash-out refinance, investment property, high balance and second home loans fall into this category, he said.

(Other groups, notably the National Association of Mortgage Brokers, have opposed the cash-out refi price hikes. The Community Home Lenders of America initially showed some resistance to the fees for high balance loans, but were later said it was mollified by an adjustment to the threshold for them that helped middle-income borrowers.)

While price changes can be disruptive to the industry, the HPC indicated that there is a need for regular updates to them, which should be made with adequate consideration for the operational burden involved.

“FHFA should reconsider the upfront fees every one-to-three years, depending on changing economic conditions, any changes to ERCF, and the results in the annual g-fee study,” DeMarco said. “Pricing realignments should always reflect the level of risk to the Enterprises and the capital required to support that risk.

“Further, adequate notice should be provided to the industry to execute pricing changes, with substantial transition time during periods of high production volume or adverse market conditions,” he added.

Other trade groups, while accepting of the need for changes in line with the current capital framework and thankful for adjustments the FHFA has made for their needs over time, also noted they can take an operational toll on mortgage companies and should be limited.

“Frequent pricing changes can pose a cost and resource burden on lenders, particularly with respect to necessary IT changes,” the Community Home Lenders of America said in its letter.

“CHLA would be comfortable if guarantee fees and LLPAs remained at the current levels for a

significant period of time — e.g. through the end of 2024,” the group added.

The Community Home Lenders of America also said that it continues to oppose non-risk-based upcharges for loans.

“CHLA continues to be extremely critical of the Congressional action at the end of 2021 to renew the non-risk related 10 basis point Fannie/Freddie guarantee fee hike — with the proceeds of such fee collections being used solely to pay for non-housing federal expenditures,” the group said.

Source: nationalmortgagenews.com

Apache is functioning normally

August 17, 2023 by Brett Tams

The Housing Policy Council (HPC) is urging the Federal Housing Finance Agency (FHFA) to modify its proposed government-sponsored enterprises (GSEs) single-family pricing framework, including coordination with banking regulators to streamline capital requirements and retention of upfront guarantee fees.

The original request for input published in May was designed to gather public feedback on goals and policy priorities the agency should pursue in its oversight of the pricing framework. FHFA also sought input on the GSEs’ single-family upfront guarantee fees and whether to continue linking those fees to the Enterprise Regulatory Capital Framework (ERCF).

HPC, in its comment letter, expressed support for the ERCF, suggesting the agency also require pricing levels that will let enterprises earn target rates of return over a reasonable period of time.

The Council also noted that the RFI did not address the financial benefits and operating advantages that Fannie Mae and Freddie Mac derive from their government-sponsored status.

The enterprises, said HPC, “are advantaged by a lower cost of debt financing and a lower cost of capital.” A borrower subsidy, HPC argues, is directly descended from such charter privileges enjoyed by the GSEs.

HPC also suggested that FHFA retain upfront guarantee fees, since it sees those fees as a critical post-financial crisis safety and soundness reform measure. FHFA, it noted, should continue to calibrate risk-based pricing to the ERCF. Meanwhile, the cross-subsidization model is not working as intended and actually contributed to GSEs’ failure in the run-up to the 2007-08 financial crisis, the Council said.

The ERCF, which was established in 2020, has a “significant impact on the risk-based pricing component of the enterprises’ guarantee fees,” the FHFA said in its May RFI. The FHFA began using the ERCF to measure the profitability of new mortgage acquisitions in 2022.

FHFA Director Sandra Thompson said the RFI was issued to increase transparency.

“FHFA seeks input on how to ensure the pricing framework adequately protects the enterprises and taxpayers against potential future losses, supports affordable, sustainable housing and first-time homebuyers, and fosters liquidity in the secondary mortgage market,” she said.

Source: housingwire.com

Apache is functioning normally

July 24, 2023 by Brett Tams

Mortgage and housing trade groups this week pushed back against a Financial Stability Oversight Council proposal aimed at reverting its review process to one in which it would be easier to designate nonbank servicers and others as systemically-important financial institutions.

Housing Policy Council President Ed DeMarco said in a letter that his group opposed the move away from the existing “activities-based approach,” in which other oversight agencies are the first line of defense before labeling an individual company a SIFI, because that has had demonstrable benefits.”

Since FSOC began raising concerns regarding nonbank mortgage lenders, various regulatory bodies and federal program agencies, including the Federal Housing Finance Agency, Ginnie Mae [and others] have taken steps to strengthen the capital rules, liquidity requirements, operational restrictions, mortgage servicing responsibilities, and consumer protection rules that apply to such companies,” said the former FHFA acting director.

In addition, when other oversight agencies potentially engage in counterproductive rulemaking from a risk management perspective, the existing approach is helpful, DeMarco said in his letter.”Another advantage of an activities-based approach is that it can address risks created or exacerbated by governmental policies,” the letter to FSOC said.

The HPC cites as an example the somewhat open-ended advancing risk in the large market for securitized government-guaranteed mortgages, which are backed by Ginnie Mae, an arm of the Department of Housing and Urban Development.

That risk, which is associated with servicers being able to cover payments delinquent borrowers aren’t making until the loan undergoes certain foreclosure procedures or engages in modification options, has been central in concerns about liquidity at nonbanks.

The HPC’s membership of mortgage companies, insurers and settlement service providers has long advocated for Ginnie to revise acknowledgement agreements that govern the rights of parties in financing agreements secured by servicing rights in ways that would encourage private corporate lenders to provide more liquidity. But efforts to do that to date have fallen short, it said.

“FSOC highlighted this issue in its 2022 annual report, but treated it as a liquidity concern with nonbank servicers, not as a consequence of Ginnie Mae policy. An activities-based approach could address this issue, to reduce or remove significant risk from the system,” DeMarco said in the letter. (Ginnie Mae has said it wants to have a permanent liquidity backstop for servicers.)

Members of another trade group made similar points in a letter to the Financial Stability Oversight Council, and noted in an emailed press statement that they “oppose a SIFI designation of any independent mortgage bank servicer.”

The scale of nonbank servicers should be kept in mind when it comes to SIFI designations, Bob Broeksmit, president and CEO of the Mortgage Bankers Association, said in the letter.

“Even today’s largest nonbank servicer has balance sheet assets well below the original asset threshold Congress established for banks in 2010,” Broeksmit said in a footnote within the missive.

Those holdings also are “at least eight times smaller than the current asset threshold established by Congress in 2018, at least 20 times smaller than any of the nonbank entities FSOC has previously attempted to designate and at least 100 times smaller than the balance sheet assets of their largest counterparties,” he added.

A Financial Stability Oversight Council proposal aimed at reverting its review process to one in which it would be easier to designate nonbank servicers and others as systemically-important financial institutions.

Housing Policy Council President Ed DeMarco said in a letter that his group opposed the move away from the existing “activities-based approach,” in which other oversight agencies are the first line of defense before labeling an individual company a SIFI, because that has had demonstrable benefits.”

Since FSOC began raising concerns regarding nonbank mortgage lenders, various regulatory bodies and federal program agencies, including the Federal Housing Finance Agency, Ginnie Mae [and others] have taken steps to strengthen the capital rules, liquidity requirements, operational restrictions, mortgage servicing responsibilities, and consumer protection rules that apply to such companies,” said the former FHFA acting director.

In addition, when other oversight agencies potentially engage in counterproductive rulemaking from a risk management perspective, the existing approach is helpful, DeMarco said in his letter.”

Another advantage of an activities-based approach is that it can address risks created or exacerbated by governmental policies,” the letter to FSOC said.