Hello, LOs!
With the Federal Housing Finance Agency making big moves in the past week to undo much of the policies of its previous director, Mark Calabria, there is one glaring exception: caps on higher-risk loans.
Back in January, the U.S. Treasury and the FHFA hammered out amendments to the Preferred Stock Purchase Agreement — a long-standing joint legal agreement between the two agencies — which included 6% caps on higher-risk loans for purchase, and a 3% limit for refinance.
That could make meeting the FHFA's new affordability goals challenging, especially given that the GSEs sometimes miss the current goals. For low-income refinances, the goal will increase from 21% to 26%, and for low-income purchases, the goal will move from 24% to 28%.
Some in the mortgage industry have been raising concerns about the higher-risk loan caps from day one of Sandra Thompson's tenure as acting FHFA director. The Community Home Lending Association, for example, told her hours after she was appointed, that while they didn't hold her responsible for the caps, they hoped she would quickly eliminate them.
It seems like doing so would be in line with other actions the regulator has taken recently. The government sponsored entities now have to give quarterly reports on their fair lending activities and Fannie Mae is counting positive rental history in its underwriting process.
Scott Olson, executive director of the CHLA, told me that the "higher-risk loans are the heart of minority lending and reaching housing goals. As long as [the limits] are in place, we have a problem."
So, where is the bottleneck? The FHFA certainly has the power to impose new limits and suspend existing limits for loan purchases on its regulated entities.
Some sources, however, told me that the holdup is with the Treasury. The process of amending the PSPA is, apparently, very complicated. It's also possible that eliminating the higher-risk loan cap is not the Treasury's immediate priority right now.
But the mortgage industry is certainly hopeful the PSPA will be amended before 2022, when the GSEs will need to purchase more minority and low-income borrower loans.
I'd be interested to hear your thoughts on whether the Treasury should be involved in things like setting limits on specific categories of loans. Send a note to gkromrei@housingwire.com
Georgia Kromrei
Senior Mortgage Reporter, HousingWire
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