USMI Roundup: Developments in Housing Finance
As the end of 2020 approaches, U.S. Mortgage Insurers (USMI) want to recognize and thank everyone who has worked to support homeowners and the U.S. housing finance system during a year full of unprecedented challenges. This past year has also ushered in significant federal regulatory and policy proposals and changes, and below are some of the key developments that we are following late this year. In 2021, USMI looks forward to working with policy makers and others to support a housing finance system that creates homeownership opportunities backed by private capital for more Americans.
FHFA Issues Final Capital Rule
Treasury Secretary Mnuchin Testifies Before Congress
House Financial Services Chairwoman Sends Letter to President-Elect Biden
Changes in FHFA Leadership
FHA Issues New Loan Limits and Commissioner Dana Wade Reacts
What We Are Reading
- FHFA Issues Final Capital Rule. On November 18, the Federal Housing Finance Agency (FHFA) released its final rule on the Enterprise Regulatory Capital Framework (ERCF) outlining post-conservatorship capital requirements for the government sponsored entities (GSEs), Fannie Mae and Freddie Mac. The GSEs will collectively be required to hold $284 billion in capital, representing approximately $20 billion more than was outlined in the 2020 proposed rule and more than $100 billion than the 2018 proposal. FHFA Director Mark Calabria said the ERCF “puts Fannie Mae and Freddie Mac on a path toward a sound capital footing” and it is “another milestone necessary for responsibly ending the conservatorships.” While appropriate capital standards for the GSEs is a critical reform, USMI continues to urge FHFA to implement additional reforms necessary to put the housing finance system on a more stable footing. It is essential for these reforms to occur before the GSEs are released from conservatorship in order to strengthen the housing finance system and ensure that the GSEs’ operations comply with their congressional charters.
Many organizations commented that the capital rule is an essential component of reforming the nation’s housing finance system, though several housing groups and policymakers also expressed concern about the impact of the final rule on consumers’ cost and access to mortgage finance credit. The Center for Responsible Lending said the final rule “places the burden of future catastrophic risk on the backs of these hardworking families and will unnecessarily raise the cost of mortgages for all borrowers, resulting in limited credit availability.” It added, “the rule pushes homeownership farther away from families of color long denied mortgage credit access.” Similarly, the National Association of REALTORS® also raised concerns about the impact of the rule on the cost of mortgage finance credit. Sen. Sherrod Brown (D-OH), ranking member of the U.S. Senate Committee on Banking, Housing, and Urban Affairs, wrote in a statement that “the GSEs help millions fulfill the dream of homeownership – especially those living in underserved rural and urban areas. Director Calabria’s rush to finish this rule without addressing concerns raised about its effects is a recipe for disaster and is patently unfair to America’s homeowners and renters.”
The final rule goes into effect 60 days after it is published in the Federal Register.
- Treasury Secretary Mnuchin Testifies Before Congress—Fields Questions on Possible GSE Exit from Conservatorship. On December 1 and 2, Treasury Secretary Steven Mnuchin testified before the Senate Banking Committee and the House Financial Services Committee (HFSC), respectively. While both hearings focused on the Treasury Department’s response to the COVID-19 crisis and its implementation of the CARES Act programs and relief, Secretary Mnuchin also addressed the GSEs’ possible exit from conservatorship.
Senators on both sides of the aisle expressed concern regarding an exit from conservatorship for the GSEs. Senator Mike Round (R-SD) noted that in “a perfect world that conservatorship should have been ended some time ago,” but voiced his concern that releasing the GSEs too early would call into question the strength of the housing sector and asked Secretary Mnuchin about an appropriate timeline. Secretary Mnuchin reiterated the importance of the GSEs having “appropriate capital” levels before being released and emphasized that the Treasury Department has made “no decisions” on this matter. The Secretary also fielded similar questions and concerns from lawmakers when he appeared before the HFSC the next day. Among those that raised objections to the GSEs’ exit from conservatorship was HFSC Chairwoman Maxine Waters (D-CA), who expressed concerns that the Treasury Department is working with the FHFA to “rush” the GSEs out of conservatorship.
In a December 10 blog post, the American Action Forum (AAF) opined on the parameters of consent orders for the GSEs and the need for additional actions to ringfence Fannie and Freddie. AAF President Doug Holtz-Eakin wrote, “The GSEs are notorious for sidestepping caps on compensation, lobbying bans, accounting standards, and more. Capital accumulation is the easy part. A really tight leash would require a consent decree specifying in great detail the management and operation of the GSEs, and with sufficient foresight to anticipate the condition that will prevail in future housing and financial markets.”
In a blog post released in recent weeks, USMI outlined key reforms that should occur, especially ahead of the possible release of the GSEs from conservatorship.
- House Financial Services Chairwoman Waters Sends Letter to President-Elect Biden. Last week, Chairwoman Waters sent a letter to President-elect Joe Biden and his transition team detailing recommendations to immediately reverse several of the actions by the Trump Administration that fall within the HFSC’s jurisdiction, including changes to the Consumer Financial Protection Bureau’s (CFPB) rulemaking and enforcement activities, as well as enhancements for oversight of Wall Street. Chairwoman Waters also called on President-elect Biden to issue an order preventing evictions and to promote stable housing during the pandemic. Key housing regulations in the letter include FHFA’s Enterprise Regulatory Capital Framework, which Chairwoman Waters said should be rescinded and also the CFPB’s General Qualified Mortgage rulemaking, which the Chairwoman recommended be paused until “various options can be thoroughly analyzed examining the potential impact for access to credit and consumer protections.”
More broadly, Chairwoman Waters called on President-elect Biden to support affordable housing by addressing homelessness, promoting housing affordability, and fair housing regulations. The Chairwoman detailed a full list of policy recommendations for the Biden Administration, which can be found here.
- Changes in FHFA Leadership. FHFA announced that Principal Deputy Director Adolfo Marzol plans to retire on December 18, 2020. Director Calabria praised Marzol for his work at FHFA, specifically his leadership to “spearhead the Enterprise capital rule” and his “central role in the response to COVID-19.” Chris Bosland, FHFA’s Senior Advisor for Regulation, will succeed Marzol as the Principal Deputy Director.
- FHA Issues New Loan Limits and Commissioner Dana Wade Reacts. On December 2, the Federal Housing Administration (FHA) released its 2021 Nationwide Forward Mortgage Limits. The new national conforming limit is $548,250 for a one-unit property. The FHA’s low-cost area limit for a single unit property will increase to $356,362, or 65% of the new confirming mortgage limit. However, in high-cost areas, the new loan limit is $822,375, or 150% of the 2021 conforming loan limit. This is the fifth year in a row that the FHA has increased the floor limits. FHA Commissioner Dana Wade expressed concern about the increase stating, “FHA has seen consistent increases in loan limits during the past few years, putting it in a position to serve a segment of borrowers that may be better-served by the conventional market.” Wade continued, “FHA’s mission is to support low-to-moderate income borrowers, so why does the law permit FHA to insure mortgages up to $822,375? This is a question for Congress and the taxpayers who stand behind FHA to answer.”
- What We Are Reading: Forbes published an article titled, “4 Ways To Get A Low-Down-Payment Mortgage Without An FHA Loan.” The article noted one of the main benefits of private mortgage insurance (PMI) over government-backed loans: “You can cancel [PMI] once you have 20% equity. With an FHA loan, you would have to pay monthly mortgage insurance premiums for at least 11 years, if not for the life of the loan.”