The federal government is well aware that mortgage lenders and industry stakeholders are frustrated by the 7% cap on second homes and investment properties that was implemented as part of a broader series of amendments to Fannie Mae and Freddie Mac‘s Preferred Stock Purchase Agreements.

In a conversation with Mortgage Bankers Association President Bob Broeksmit last week, Bharat Ramamurti, deputy director of the National Economic Council, acknowledged the issue, which was designed to provide more liquidity to the GSEs.

“We recognize that the issues that you raised about second homes and so on, is a shorter-term issue,” Ramamurti said. “All I can say on that is we are aware of it, we will continue to engage with it and work on it, and are happy to talk to you and your members about it going forward, and have discussions with FHFA going forward. But we don’t have any new news to report on that.”

Lenders and the MBA have opined that the 7% PSPA cap has caused disruptions, particularly since a key provision requires a 52-week look-back. Compliance will be difficult given that the market is producing north of 7% of those products, Broeksmith said in his conversation with Ramamurti during the MBA’s spring conference last week. Those products are “very profitable for the GSEs given the loan-level price adjustments on them. They actually create more capital, which of course, is Director Calabria’s priority for them. Yet, Treasury and FHFA have not given Fannie and Freddie the flexibility they need to get to those 7% levels more gradually, say by the end of 2021.”

Broeksmit added: “The issue is time-sensitive since May GSE deliveries are affected and there are massive run-ups in price add-ons to second homes and investment properties in response to this policy.”

FHFA Director Mark Calabria last week told MBA members that, although the agency is looking to introduce additional PSPA amendments, they’ll have to manage for the time being.

“I obviously wish that we were in a better capital position and had a stronger Fannie and Freddie that could support more of the market, and that’s our objective” Calabria said. “The reality is there will be some short-run pinch, if you will, on the market, while we try to build a stronger Fannie and Freddie that can support the market. I do want to clarify because I think there’s often some misperceptions out there, and to say, the PSPA are lines of credit, Fannie and Freddie cannot legally knowingly take risk against PSPAs. That would be like if Wells [Fargo] said, ‘Well, we’ve got deposit insurance so who cares.’”

The MBA has sought clarity on the PSPAs and the 7% cap on second homes and investment properties. In a letter written in March, the MBA outlined four specific areas of concern:

1. Reports that the GSEs may be implementing limits on a per-lender basis rather than across their aggregate books of business, which “represents an overly conservative method of achieving compliance,” according to the MBA.

2. Disproportionate challenges for some lenders — especially smaller lenders — to meet lender-level requirements set by the GSEs, due to their footprints in certain geographic markets or their lack of access to non-enterprise outlets for these loans.

3. Reports that the GSEs are requiring some lenders to adjust loan deliveries as early as April. The MBA noted these loans are already locked and that lenders “cannot reasonably alter their delivery mixes on such short notice.”

4. Inconsistencies in the requirements being communicated to different lenders, which raises concerns about equitable treatment of lenders of varying sizes, charters, or business models.

In addition, the MBA also warned that cash window limits under the PSPA amendments could have unintended consequences for borrowers, lenders, investors, and Fannie and Freddie. The revised PSPAs require that beginning Jan. 1, 2022, the GSEs shall “not acquire for cash consideration from any single seller…during any period comprising four calendar quarters, Single-Family Mortgage Loans with an unpaid principal balance in excess of $1.5 billion.”

The MBA letter states that this requirement will force up to several dozen lenders to curtail their use of the GSEs’ cash windows, which will in turn force the lenders to increase their use of mortgage-backed security swaps, sales of loans to correspondent aggregators, or shifting of their business mix to other loan products.

The post White House aware of issues over investment properties appeared first on HousingWire.

Source: HousingWire Magazine

The Consumer Financial Protection Bureau formally delayed the mandatory compliance date of the General Qualified Mortgage final rule – better known as the QM rule – from July 1, 2021 to October 1, 2022 on Tuesday. This follows the bureau’s notice of proposed rulemaking on the issue on March 4.

“So many consumers have been hit hard by the pandemic and the economic downturn, and we want to ensure that responsible, affordable mortgages remain available,” said CFPB Acting Director Dave Uejio. “As the mortgage market navigates an uncertain and challenging time, extending the date by which lenders must comply with the CFPB’s new General QM definition will help provide options and flexibility for both lenders and borrowers.”

The bureau just issued its final rulings on QM in December, establishing a pricing threshold that effectively replaced the debt-to-income limit of 43% with a price-based approach that gives lenders relief for loans capped at 150 basis points above the prime rate. Today’s action means that lenders have more time to offer QM loans based on the homeowners’ DTI, and more time to use the GSE Patch, which provides QM status to loans that are eligible for sale to Fannie Mae or Freddie Mac.

The bureau did note that “The availability of the GSE Patch after July 1, 2021 may be limited by recent revisions to the Preferred Stock Purchase Agreements entered into by the Department of the Treasury and the Federal Housing Finance Agency.”

In Lender Letters issued on April 8, Fannie Mae and Freddie Mac confirmed that loans purchased by the GSEs with application dates on and after July 1 must meet the QM standards set forth in December. The directive laid out in their amended Preferred Stock Purchase Agreements with the Treasury Department forbid Fannie and Freddie from buying QM loans under the GSE Patch.

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Several prominent trade groups expressed their concern about delaying the QM rule during the short comment period offered by the CFPB.

The Housing Policy Council sent a letter to the CFPB on March 30 expressing its opposition to delaying the implementation of the Final QM Rule. The HPC letter outlined why it opposes delaying the implementation of the Final QM Rule, including:

• The 2020 General QM Rule resulted from an extensive and disciplined rulemaking process that reflects the thorough analysis and public input required under the Administrative Procedure Act;
• The Bureau has not provided a sufficient rationale for delaying implementation, given the more expansive access to credit provided under the 2020 General QM Rule relative to the 2013 QM Rule;
• The benefits of implementing the 2020 General QM Rule outweigh the benefits of delaying expiration of the 2013 QM Rule, as evidenced by the Bureau’s data and analysis; and
• Delayed expiration of the 2013 QM Rule, in order to facilitate reconsideration of the 2020 General QM Rule, is not in the public interest.

The trade organization’s letter states: “We also are concerned that the Proposed Rule’s real purpose is to set the stage for the Bureau to reopen the 2020 General QM Rule. We firmly believe that reopening the 2020 General QM Rule would not be in the public interest.”

David Stevens, former CEO of the Mortgage Bankers Association who also served as senior vice president of single family at Freddie Mac, executive vice president at Wells Fargo Home Mortgage, president and COO of the Long and Foster Realty Companies, assistant secretary of Housing and FHA Commissioner, wrote a scathing opinion piece outlining his opposition to the move.

“This act poses serious risk to mortgage finance and brings potential downstream legal risk to the industry. With the mandatory date on hold, it leaves open the opportunity to re-litigate the work that has taken over two years to date. The Bureau will have more options to tinker with the General QM rule — without starting the whole process over again with an ANPR.”

The post It’s official: QM rule compliance delayed until October 2022 appeared first on HousingWire.

Source: HousingWire Magazine

Last year, during the throes of COVID-19, I expended many words arguing that the U.S. economy would be OK despite the dark period we were in. We just needed patience. We aren’t in a housing bubble. Today we are enjoying the most remarkable comeback of the U.S. economy, which almost no one saw coming. The America is Back Economic Model and the 10-year yield should share the Oscar for best performance.

Favorable demographics have been a significant contributor to our rapid economic rebound, especially in the housing market. The U.S. economy was plugging along nicely before COVID-19, and the housing market was doing even better. The month before COVID-19 became a known entity in our country, demand for housing started to break out. Once COVID hit in earnest, many predicted that housing would crash.

Demand did take a pause — but that was brief. Inventory levels stayed stable, housing demand picked up after five weeks and mortgage rates went lower. Housing is a necessity — it’s not optional. Because of this, if we have the demographics for home buying, then we will have stable replacement demand. The only factor that changes this in a big way is if mortgage rates get too high. Since 1996, it’s been very rare to have existing home sales fall below 4 million in a month.

When you have the best housing demographic patch ever in history and the lowest mortgage rates in history, with housing tenure at 10 years, then we have to start worrying about home-price growth. All those factors are in play, and home prices are growing too fast. This was my main concern in the years 2020-2024, and that is being played out currently. Today the Case-Shiller index showed 12% home-price growth. For me, it’s always about real home-price growth, and this price index, as you can see, has gone parabolic now.

This is a big reason why recently on Bloomberg, I talked about how this is the most unhealthy housing market in a long time.

The post This isn’t a housing bubble — and that’s the problem appeared first on HousingWire.

Source: HousingWire Magazine

Source: American Banker

Here it is: another article about appraisal modernization. Many are tired of hearing about how the appraisal industry needs to change and progress. But it’s true, and change is necessary. (Where would our Internet-provider world be if it hadn’t evolved beyond 9600 baud modems to gigabit fiber-optic service?)

The FHFA RFI responses to appraisal modernization are a treasure trove of insight into ideas and options for modernization from a wide variety of respondents. In many of those reviewed, there is a strong desire to keep appraisals and appraisers as key components of the mortgage lending process. A desire to see the collateral analysis and valuation process evolve, modernize, and move forward—whatever term you prefer. There are many good ideas for updating and modernizing that keep the appraiser involved, though the appraiser’s role may look different. Because Freddie and Fannie are such a large share of the market, their appraisal guidelines—forms and methods—become the de facto industry standards for residential mortgage lending.

Additionally, we’ve seen recent updates from Fannie and Freddie on their effort to redesign UAD and update the “forms.” The GSEs have been working to gather feedback on their proposed ideas and approach to appraisal reporting formats from various industry stakeholders for the past couple of years. The current notion is to adjust how an appraiser reports their value opinion with accompanying salient information—moving from a standardized form to a standard yet dynamic format that will adjust to the property’s characteristics being appraised. This approach would eliminate the need for property-specific forms and the need to cram multiple data points into a single field on a form, as we do with today’s UAD. These changes are beneficial from a simplicity and flexibility perspective. 

To paint an example of what this might look like, an appraisal form software provider would provide data input screens for the subject property address and certain property characteristics, such as single-unit or two-unit, owner-occupied or tenant-occupied, fee or leasehold ownership, and so forth. Based on these classifications, additional information would be input. For a single-unit home, HOA information or project amenities would not be needed. For a four-unit, the data fields included would expand to address information for all units, rental information and other building attributes important to multi-unit properties vs. single unit. When all required data input fields are completed, the data file is delivered to the lenders, same as it is today, and the data fields are formatted and presented in a manner that a “form” is printable or can be turned into a PDF so that the appraisal can be viewed.

The GSEs are pushing out a timeline that indicates the design and planning for this new approach will be  completed this year. The industry begins the mammoth task of rebuilding its systems, technology, processes, and product to support this new approach in 2022/2023. The changes will impact just about everything and everyone in the collateral valuation space.

As this effort’s scale and breadth are coming into focus, many are asking FHFA and GSEs to clarify and justify the  associated costs. There are numerous comments in the FHFA RFI responses, from significant entities including the MBA and ABA, asking FHFA to provide more insight into the value of the proposed changes. There is some concern that the changes will be beneficial primarily to the GSEs, with the cost and impacts borne by the lenders with minimal direct benefit. Forms providers, collateral management technology providers, automated appraisal review tools, AMCs, lenders workflow systems, and loan origination systems, to name a few, will be impacted significantly; not to mention the people, training, and process changes that will also be needed. This change is akin to pulling all of the wiring and plumbing out of your house and replacing—no small task.

As this effort by the joint GSE group is still in process, there are no finalized requirements or new data standard to build to at this juncture. It is business as usual for at least another year, likely longer. So, at this point, exactly what this new world looks like is speculation. Additionally, we have yet to see if the FHFA provides any additional direction to the GSEs based on the extensive feedback collected in the RFI. 

No doubt, investment in modernization is needed in the appraisal process. A measured, incremental, iterative approach minimizing impacts to all stakeholders seems prudent. At CoreLogic, we remain closely involved with all participants in this process and stay ready to support the needs of our appraiser, lender, and AMC clients as they help consumers find, buy and protect their homes.

The post Appraisal modernization: What is going on with the forms? appeared first on HousingWire.

Source: HousingWire Magazine