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Tag: FHFA

  • FHFA finalizes updates to capital framework

    FHFA finalizes updates to capital framework

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    The Federal Housing Finance Agency moved forward on some of its proposed tweaks to rules related to the financial soundness of Fannie Mae and Freddie Mac with what it characterized as “minor modifications.”

    Certain changes to guarantees on uniform mortgage-backed securities, apartment loan exposures on government-subsidized buildings and interest-only securities are part of the finalized Enterprise Regulatory Capital Framework the agency promised to deliver this year.

    But not all proposed updates to the framework advanced. Notably, it withdrew one related to use of credit scores and reporting at the enterprises the FHFA oversees.

    “FHFA currently is not adopting the proposed modification to the procedure for selecting a representative credit score for a single-family mortgage exposure when multiple credit scores have been submitted for at least one borrower,” the agency said.

    The omission was prompted by mixed feedback about a plan to give mortgage companies the option to use two rather than the three credit reports when submitting loans to Fannie Mae and Freddie Mac.

    In the proposal, the industry would have transitioned from using either the median of three scores from as many reports, or the lower of the number from two, to an average of either.

    “FHFA proposed this modification to prevent a downward shift in representative credit scores under the current methodology once the enterprises require a minimum of two, rather than three, credit reports,” the agency explained.

    While that aspect of the proposal had supporters who’ve studied it and determined it wouldn’t result in a material change for borrowers, others have raised questions about whether it could have some negative unintended consequences.

    “In consideration of the delayed implementation date for the bimerge requirement and the ongoing public engagement related to credit scores, FHFA has determined to not adopt the proposed change to the calculation of representative credit scores at this time,” the agency said.

    “FHFA may, in the future, finalize this aspect of the proposed rule,” it added.

    The agency did move forward with part of the proposal that updates the score assumption to 680 for single-family mortgage exposures originated without a traditional debt-payment history.

    Industry experts contacted at deadline were still reviewing the final rule’s nuances.

    But one expressed hope advancing the overall capital framework would help the enterprises move toward a point where profits wouldn’t have to be swept to the Treasury, as they have been since conservatorship

    “As one of the leading advocates in ending the profit sweep, CHLA commends FHFA for completing this rule making,” said Scott Olson, executive director of the Community Home Lenders of America, in an emailed statement.

    “However, it’s important to remember that the main purpose of building capital is to enable Fannie and Freddie to aggressively fulfill their role of providing mortgage credit access to homeowners,” he added.

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    Bonnie Sinnock

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  • FHFA rule change could expand the number of suspended counterparties

    FHFA rule change could expand the number of suspended counterparties

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    The Federal Housing Finance Administration is looking to make it easier to put entities and people into its Suspended Counterparty Program, a proposed rule change states.

    This would require Fannie Mae, Freddie Mac and the Federal Home Loan Banks to report to the FHFA any individual or company they do business with that committed “certain forms of misconduct” in the past three years. The current program was established by FHFA letter in June 2012 and amended in December 2015.

    Today, the SCP list is limited to those that have committed and are convicted of criminal offenses. “However, in FHFA’s experience of administering the SCP, it has determined that this standard is too narrow; specifically, it does not authorize suspension of counterparties that have been found to have committed various forms of misconduct in the context of civil enforcement actions,” the proposed amendment to the rule said.

    It is looking to broadly expand the definition of misconduct “to all manner of civil enforcement proceedings,” including cases before administrative law judges, as well as qui tam actions (also known as whistleblower cases) such as those brought under the False Claims Act.

    While many of those civil cases are settled without an admission of misconduct, the proposal noted, the change could allow the FHFA to put those entities on the SCP list. “FHFA has determined that it is appropriate to permit suspension where enforcement claims are resolved without admission of misconduct,” the proposal said.

    For example, in the most recent qui tam settlement involving Movement Mortgage, the company specifically did not admit any legal liability for the False Claims Act violations. 

    Other changes would allow for placement on the SCP for criminal or civil misconduct in connection with the management or ownership of real property.

    “Amending the Suspended Counterparty Program will help strengthen FHFA’s ability to protect its regulated entities from business risks presented by individuals or institutions who engage in misconduct,” said Director Sandra Thompson, in a press release. “The proposed rule will strengthen FHFA’s ability to ensure the regulated entities remain safe and sound so they continue to serve as reliable sources of liquidity.”

    The changes would also create an ability to vacate suspension orders in certain circumstances.

    Currently, the SCP list has 170 individual or company names, most of which have a definitive end date for the suspension. The person on the list the longest time, starting on April 15, 2013 with an indefinite suspension, is Lee Farkas, the convicted mortgage fraudster who ran Taylor, Bean & Whitaker.

    First Mortgage and its convicted founder and chairman Ron McCord — a former Mortgage Bankers Association chairman — are both also on the list. Live Well Financial, the defunct reverse mortgage lender, was the most recent addition.

    This proposal will be opened for a 60-day comment period once it is published in the Federal Register.

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    Brad Finkelstein

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  • FHFA sets timeline for credit score and reporting updates

    FHFA sets timeline for credit score and reporting updates

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    The Federal Housing Finance Agency has released some future milestone dates for a process that would update consumer credit measures used in mortgage underwriting, make the use of various sources more competitive and potentially extend lending to more borrowers.

    The process, which is set to start next year, will loop in mortgage companies and others affected by the updates so that some of their concerns about possible higher costs and other unintended consequences can be considered and addressed, according to the agency.

    “Today’s announcement highlights FHFA’s commitment to stakeholder engagement as the enterprises implement the new credit score models and transition to a bi-merge reporting requirement,” said Director Sandra Thompson. “Obtaining public input in a transparent manner and considering the feedback is critical to a successful transition.”

    FHFA plans to start in the first quarter of 2024 by changing the process used by lenders selling loans to government-sponsored enterprises Fannie Mae and Freddie Mac from one based on three merged credit reports (from Equifax, Experian and TransUnion) to two.

    Next, it plans to transition Fannie and Freddie’s underwriting away from reliance solely on FICO’s classic credit score.

    Starting around the third quarter of next year, they’re set to start working on the first phase, which will involve delivering updated scores validated last year and associated disclosures, including an one from FICO known as 10T. The other one that was validated last October is VantageScore 4.0. VantageScore is a collaboration between the three credit bureaus.

    The second phase will then ideally follow in the fourth quarter of 2025. At that point, Fannie and Freddie will be working on putting the new scores into use not only for pricing mortgages they buy, but also for setting capital requirements and other processes.

    In addition to buying loans within certain parameters with the aim of furthering their affordable housing missions, the two GSEs are currently positioned as a backstop for the market and have been working to retain a certain amount of capital relative to the credit risks they take on in order to protect their financial stability.

    Fannie and Freddie were brought into government conservatorship when the Great Recession’s housing crash threatened their finances and have maintained ties to the U.S. Treasury.

    Updated scores could change the way they size up risks but aren’t designed to add any. Rather, they incorporate things like trended data, for example, such that they examine more how a borrower manages debt over time rather than at a particular point.

    The GSEs have done some ad-hoc experiments with underwriting based on more advanced borrower assessments like this but scores that incorporate them would have even more influence in the underwriting process as they’re more of a primary influence on whether a borrower qualifies for a loan and what fees lenders are charged in selling it. Those fees influence what the borrower pays for mortgage credit.

    At one point under earlier leadership the FHFA was concerned about VantageScore’s ties to the credit reporting agencies. A different director later reversed that decision.

    Former Fannie Mae President and CEO Timothy Mayopoulos, who recently was named to lead the Silicon Valley bridge bank, was an advocate of updated underwriting and fell in love with a credit reporting executive, who he later married. A watchdog agency flagged this as a conflict of interest at one point early in their relationship. He left the GSE long before the current decision to accept VantageScore.

    The current leadership of the GSEs and their regulator seem to be taking an even-handed approach to the different credit reporting companies and score providers involved by accepting both types of advanced models.

    However, Rep. John Rose, R.-Tenn., has expressed some concerns about the bi-merge process.

    “Lenders may not be able to accurately price risks and manage their mortgage-related exposures if they are relying on a limited picture of borrowers’ credit files,” he said in a letter sent to Thompson last month.

    Brad Finkelstein contributed reporting to this article.

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    Bonnie Sinnock

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