Skip to main content
Menu Icon
Close

InfoBytes Blog

Financial Services Law Insights and Observations

Filter

Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.

  • HUD establishes 40-year loss-mit option

    Agency Rule-Making & Guidance

    On March 8, HUD published a final rule in the Federal Register to allow mortgagees to increase the maximum term of a loan modification from 360 to 480 months for FHA-insured mortgages after a borrower defaults. HUD explained that “[i]ncreasing the maximum term limit will allow mortgagees to further reduce the borrower’s monthly payment as the outstanding balance would be spread over a longer time frame, providing more borrowers with FHA-insured mortgages the ability to retain their homes after default.” The change also aligns FHA with modifications made available to borrowers with mortgages backed by Fannie Mae and Freddie Mac, both of which provide a 40-year loan modification option. HUD considered public comments in response to a proposed rule published last April (covered by InfoBytes here), and noted that commenters said a 40-year loan modification option would provide significant relief to struggling borrowers. Concurrently, HUD published Mortgagee Letter 2023-06 to establish the standalone 40-year loan modification policy. The final rule is effective May 8.

    Agency Rule-Making & Guidance Federal Issues FHA Mortgages Consumer Finance HUD Loss Mitigation Fannie Mae Freddie Mac

  • Fannie says appraisals are no longer required to establish market value

    Agency Rule-Making & Guidance

    On March 1, Fannie Mae issued a Selling Guide announcement to introduce a range of options for establishing a property’s market value, noting that it is “moving away from implying that an appraisal is a default requirement.” As part of Fannie’s efforts to improve the efficiency and accuracy of the home valuation process, it is rolling out choices that balance “traditional appraisals with appraisal alternatives.” Options introduce the term “value acceptance,” which will be “used in conjunction with the term ‘appraisal waiver’ to better reflect the actual process of using data and technology to accept the lender-provided value.” A new option, “value acceptance + property data” will use property data collected by vetted third parties that conduct interior and exterior data collection on a property. This data will be used by the lender to confirm property eligibility (an appraisal will not be required). “Hybrid appraisals” will be “based on interior and exterior property data collection by a vetted and trained third-party that is provided to an appraiser to inform the appraisal.” Fannie explained that hybrid appraisals will be “permitted for certain one-unit transactions where value acceptance + property data was initially started, but changes in loan characteristics results in the transaction not being eligible for that option.”

    The updates also allow for alternative methods to the Appraisal Update and/or Completion Report, including a borrower/builder attestation letter verifying completion of construction, and a borrower attestation letter confirming completion of repairs for existing construction. The updates also provide additional guidance on the use of sweat equity and revise timelines and expectations for lenders’ prefunding and post-closing quality control reviews, among other things.

    Agency Rule-Making & Guidance Federal Issues Fannie Mae Appraisal Mortgages Consumer Finance Selling Guide

  • FHFA proposes changes to GSE regulatory capital framework

    Agency Rule-Making & Guidance

    On February 23, FHFA issued a notice of proposed rulemaking (NPRM) to amend the Enterprise Regulatory Capital Framework (ERCF) that governs Fannie Mae and Freddie Mac. (See also FHFA fact sheet here.) Changes include modifications to the capital requirements for commingled securities, the introduction of a 0.6 risk multiplier for calculating multifamily mortgage exposures backed by properties with certain government subsidies, the introduction of a standardized approach for calculating counterparty credit risk for derivatives and cleared transactions, and modifications for how representative credit scores for single-family loans are determined. Fannie and Freddie would also be required to “assign an original credit score of 680 to single-family mortgage exposure without a permissible credit score at origination” instead of 600. The NPRM also modifies “guarantee assets, mortgage servicing assets, time-based calls for [credit risk transfer] exposures, interest-only [mortgage-backed securities], the single-family countercyclical adjustment, the stability capital buffer, and the compliance date for the advanced approaches.” Comments on the NPRM are due 60 days after publication in the Federal Register.

    Agency Rule-Making & Guidance Federal Issues FHFA Fannie Mae Freddie Mac GSEs Mortgages

  • Biden administration releases Renters Bill of Rights

    Federal Issues

    On January 25, the Biden administration announced new actions for enhancing tenant protections and furthering fair housing principles, which align with the administration’s Blueprint for a Renters Bill of Rights that was released the same day. The Blueprint and fact sheet lay out several new actions that federal agencies and state and local partners will take to protect tenants and increase housing affordability and access.

    • The FTC and CFPB will collect information to identify practices that unfairly prevent applicants and tenants from accessing or staying in housing, “including the creation and use of tenant background checks, the use of algorithms in tenant screenings, the provision of adverse action notices by landlords and property management companies, and how an applicant’s source of income factors into housing decisions.” According to the White House, this marks the first time the FTC has issued a request for information that explores unfair practices in the rental market. The data will inform enforcement and policy actions under each agency’s jurisdiction.
    • The CFPB will issue guidance and coordinate enforcement actions with the FTC to ensure information in the credit reporting system is accurate and to hold background check companies accountable for having unreasonable procedures.
    • The FHFA will launch a transparent public process for examining “proposed actions promoting renter protections and limits on egregious rent increases for future investments.” Periodic updates, including one within the next six months will be provided to interested stakeholders. FHFA Director Sandra L. Thompson commented that the agency “will conduct a public stakeholder engagement process to identify tangible solutions for addressing the affordability challenges renters are facing nationwide, particularly among underserved communities. The proposals discussed during this process will focus on properties financed by [Fannie Mae and Freddie Mac].” She noted that FHFA will continue to evaluate Fannie and Freddie’s role in providing tenant protections and advancing affordable housing opportunities.
    • The DOJ intends to hold a workshop to inform potential guidance updates centered on anti-competitive information sharing, including within the rental market space.
    • HUD will publish a notice of proposed rulemaking to require public housing authorities and owners of project-based rental assistance properties to provide tenants at least 30 days’ advanced notice before terminating a lease due to nonpayment.
    • The Biden administration will also hold quarterly meetings with a diverse group of tenants and tenant advocates to share ideas on ways to strengthen tenant protections.

    According to the announcement, the agencies’ actions exemplify the principles laid out in the Blueprint, which underscores key tenant protections, including: (i) renters should be able to access safe, quality, accessible, and affordable housing; (ii) renters should be provided clear and fair leases with defined rental terms, rights, and responsibilities; (iii) federal, state, and local governments should ensure renters are aware of their rights and are protected from unlawful discrimination and exclusion; (iv) renters should be given the freedom to organize without obstruction or harassment from housing providers or property managers; and (v) renters should be able to access resources to prevent evictions, ensure eviction proceedings are fair, and avoid future housing instability.

    The administration also announced it is launching a related “Resident-Centered Housing Challenge”—a call to action for housing providers and other stakeholders to strengthen their practices and make independent commitments that will improve the quality of life for renters. The Challenge will launch this spring and encourages states, local, tribal, and territorial governments to improve existing fair housing policies and develop new ones.

    Federal Issues Biden Tenant Rights Consumer Finance FHFA CFPB FTC Fair Housing DOJ HUD Fannie Mae Freddie Mac

  • FHFA outlines MSR guidance for managing counterparty credit risk

    Agency Rule-Making & Guidance

    On January 12, FHFA released an advisory bulletin communicating supervisory expectations for Fannie Mae and Freddie Mac (the Enterprises) related to the valuation of mortgage servicing rights (MSRs) for managing counterparty credit risk. FHFA emphasized that Fannie and Freddie’s “risk management policies and procedures should be commensurate with an Enterprise’s risk appetite[] and based on an assessment of seller/servicer financial strength and MSR risk exposure levels.” FHFA relayed that while sellers and servicers assign values to their MSRs, the Enterprises should implement their own processes to evaluate the reasonableness of seller/servicer MSR values. FHFA explained that Fannie and Freddie are “exposed to counterparty credit risk when seller/servicers provide representations and warranties that mortgage loans conform with its selling guide requirements,” and reiterated that “[f]ailure to meet such obligations and commitments may cause the Enterprise to incur credit losses and operational costs.”

    The advisory bulletin lays out risk management expectations to ensure MSR values are reasonable, objective, and transparent, and provides guidance covering several areas, including (i) objective evaluation of MSR values; (ii) MSR valuations for mortgage loans owned or guaranteed by Fannie and Freddie as well as stress testing; (iii) MSR valuations for mortgage loans not owned or guaranteed by Fannie or Freddie; (iv) market data input; (v) use of third-party providers; (vi) frequency of evaluations; and (vii) discount to MSR values when servicing rights are terminated. The advisory bulletin is applicable only to MSRs for single-family mortgage loans and is effective April 1.

    Agency Rule-Making & Guidance Federal Issues Mortgages Fannie Mae Freddie Mac GSEs Risk Management Credit Risk

  • FHFA issues model risk management guidance

    Agency Rule-Making & Guidance

    On December 21, FHFA issued guidance to Freddie Mac, Fannie Mae, the Federal Home Loan Banks (FHLBanks), and the Office of Finance on its model risk management framework. According to the bulletin, the purpose of the guidance—formatted as Frequently Asked Questions—“is to provide supplemental guidelines that will address some of the gaps in [FHFA’s 2013 Model Risk Management guidance] prompted by changes in model-related technologies and questions generated from the expanded use of complex models by the FHLBanks.” “The supplemental guidance also addresses model documentation, the communication of model limitations, model performance tracking, on-top adjustments, challenger models, model consistency, and internal stress testing.”

    Agency Rule-Making & Guidance FHFA FHLB Fannie Mae Freddie Mac GSEs Risk Management

  • Fannie, Freddie announce LIBOR transition plans

    Federal Issues

    On December 22, GSEs Fannie Mae and Freddie Mac announced replacement indices based on the Secured Overnight Financing Rate (SOFR) for their legacy LIBOR indexed loans and securities (see here and here). The announcement follows the Federal Reserve Board’s final rule setting forth recommended replacement rates for financial contracts based on LIBOR (covered by InfoBytes here). For single-family mortgage loans and related mortgage-backed securities, the GSEs selected the relevant tenor of CME Term SOFR plus the applicable tenor spread adjustment, as published and provided by Refinitiv Limited (also known as “USD IBOR Cash Fallbacks” for “Consumer” products). The transition to the replacement indices will occur the day after June 30, 2023, which is the last date on which the Intercontinental Exchange, Inc. Benchmark Administration Limited will publish a representative rate for all remaining tenors of U.S. dollar LIBOR. The GSEs also published replacement indices for multifamily mortgage loans and related mortgage-backed securities, single family and multifamily collateralized mortgage obligations and credit risk transfer securities, and derivatives.

    Federal Issues Fannie Mae Freddie Mac LIBOR GSEs SOFR Mortgages

  • GSEs must seek FHFA preapproval for new products

    Agency Rule-Making & Guidance

    On December 20, FHFA announced a final rule requiring Fannie Mae and Freddie Mac to provide advance notice of new activities and to obtain prior approval before launching new products. (See also fact sheet here.) Among other things, the final rule establishes that FHFA will determine which new activities merit public notice and comment and would be treated as new products subject to prior approval. Specifically, the final rule establishes that once a Notice of New Activity is deemed received, FHFA has 15 calendar days to determine if the new activity is a new product that merits public notice and comment. Additionally, the final rule establishes a public disclosure requirement for FHFA to publish its determinations on new activity and new product submissions. Among other things, if the agency “determines that a new activity is a new product, the final rule requires FHFA to publish a public notice soliciting comments on the new product for a 30-day period.” The final rule is effective 60 days after publication in the Federal Register.

    Agency Rule-Making & Guidance Federal Issues FHFA GSEs Fannie Mae Freddie Mac Federal Register

  • Fannie expands underwriting eligibility to help "credit invisible" borrowers

    Agency Rule-Making & Guidance

    On December 6, Fannie Mae announced enhancements to its Desktop Underwriter to create more homeownership opportunities for “credit invisible” borrowers by changing its automated underwriting system to expand eligibility and further simplify the borrowing process for loans where borrowers do not have a credit score. Fannie noted that close to 15 percent of Black and Latino/Hispanic people are credit invisible (as compared to nine percent of their white and Asian counterparts), explaining that these imbalances lead to racial disparities in access to credit and quality affordable housing. “We believe consumers should benefit from their responsible money management habits and a steady stream of income when buying a home, even if they don’t have an established credit history,” Mallory Evans, Executive Vice President and Head of Single-Family Business at Fannie Mae, said in the announcement. “Traditional lending practices make it hard for borrowers with no credit score to access credit, so we’ve taken steps that may help them responsibly qualify for a home loan using data that provides a more holistic view of how they manage their money.”

    Beginning December 10, enhancements made to the Desktop Underwriter will (i) update borrower eligibility criteria for those with no credit score to align with Fannie’s standard selling guide requirements; (ii) enable the system to evaluate “a borrower’s monthly cash flow over a 12-month period to potentially enhance their credit risk assessment”; and (iii) simplify the mortgage process by automating the current selling guide requirement for documenting nontraditional sources of credit.

    Agency Rule-Making & Guidance Federal Issues Fannie Mae Mortgages Consumer Finance Underwriting

  • FHFA publishes new statistics on home valuations

    Federal Issues

    On October 24, FHFA published a new Uniform Appraisal Dataset (UAD) Aggregate Statistics Data File, along with dashboards that provide visualizations of the newly available data related to home valuations. According to the press release, the UAD data file and dashboards provide stakeholders and the public access to a broad set of data points and trends found in appraisal reports that may be grouped by neighborhood characteristics and geographic levels. The data was compiled from 47.3 million UAD appraisal records collected from 2013 through the second quarter of 2022 on single-family properties. “As home valuations are a vital component of the mortgage process, publishing transparent, aggregate data on appraisals provides useful information to the public while protecting borrowers’ personally identifiable information,” FHFA Director Sandra L. Thompson said. “Today’s announcement exemplifies our commitment to the development of a more efficient and equitable valuation system that ultimately reduces appraisal bias.” 

    Federal Issues FHFA Fannie Mae Freddie Mac GSEs Mortgages Consumer Finance Appraisal

Pages

Upcoming Events