Posts tagged ‘Fannie Mae and Freddie Mac’

Should the Government be subsidizing Million Dollar Homes?

The reason why I’m asking this question is because Fannie Mae and Freddie Mac will begin buying mortgages for as much as $1M starting next year, according to the Wall Street Journal.  Even though a million dollars doesn’t buy what it used to, the increased dollar amount not only will help your credit union help your members but will also, in my ever so humble opinion, touch off an election year debate about the role that government should play in housing finance. 

First, let’s start with the facts.  Fannie and Freddie purchase mortgage loans within Conforming Loan Limits (CLL).  Under the Housing and Economic Recovery Act (HERA), the CLL is adjusted each year based on changes in the average U.S. home price.  According to the journal, the baseline CLL will jump from $548,250 to $650,000.  The real eye popping number is that the conforming loan limit for high cost areas will jump from $822,375 to approximately $1,000,000.  The official announcement is expected November 30th

The sharp rise in the CLL underscores just how profoundly the pandemic has impacted the economy in so many unexpected ways.  Nationwide, the median single family home price rose 16% in the 3rd Quarter to more the $363,000.  We haven’t seen a comparable rise since 1968.  The rise in home prices has been fueled by a rush to the suburbs since remote work is now commonplace, combined with a shortage of homes to purchase.  It’s classic supply and demand. 

But I can’t help but think that more than a few of our elected representatives who live outside of Californian and New York will view a $1M home price as something the government should not be subsidizing.  Remember, it wasn’t all that long ago that a Republican controlled Congress, capped the federal deduction for state and local taxes, and it is a Democratically controlled Congress that has struggled to repeal this change.  Even though a million dollars is not what it used to be—one calculator I just consulted says that you need over $3.3M to have the same buying power that a million dollars would have given you in 1980—there is something about a million dollars which doesn’t sound middle class.  Let the demagoguery begin.

November 17, 2021 at 10:13 am Leave a comment

For New York, Things Are Worse Than They Appear

Yesterday, the Federal Housing Finance Agency highlighted just how long the pandemic has lasted by announcing that mortgages backed by Fannie Mae and Freddie Mac may be eligible for an additional forbearance extension of three months. Although the agency cautioned that other conditions may apply, the extension will generally apply to borrowers who are on a COVID-19 forbearance plan as of February 28th, 2021. By extending forbearance plans through May, GSE forbearance policies are now more consistent with New York State’s forbearance requirements for non-GSE loans held by your credit union. Remember that in early January, the State Legislature passed legislation granting forbearance extensions to individuals claiming to have been negatively impacted as a direct result of COVID-19. 

The announcement underscores that on a national level, the economic conditions under which credit unions will operate remain unclear, even as the vaccination rollout picks up speed. This uncertainty is particularly true for credit unions in New York. The state has been among the hardest hit by the pandemic – for example, New York currently has an unemployment rate of 8.2%, the fifth highest in the country. In addition, New York has some of the highest numbers of delinquent mortgages in the country, with New York City standing out among other metropolitan areas for its reported number of mortgages past due. 

Of course, these statistics are as predictable as they are depressing. In October 2020, the Empire Center reported that New York’s second quarter GDP dropped 36.3%, marking the biggest decline on record in New York state history. To put it in perspective, New York’s drop was almost five percent higher than the national average for the same period. 

On that inspiring note, enjoy your credit union day. 

February 10, 2021 at 9:22 am Leave a comment

Bank regulators issue more guidance on the LIBOR transition

Okay, so this may not be as exciting as the recent election news, but every credit union should know what the London Interbank Offered Rate is; whether or not your credit union uses it for any of your adjustable rate loan products, and what indexes it is considering replacing it with when it is finally discontinued in 2021.

The latest LIBOR news came in the form of a joint statement issued by bank regulators on Friday. NCUA did not join in issuing this statement, but it has worked closely with these regulators on the issue. One of the indexes most talked about as a replacement for LIBOR is the Secured Overnight Finance Rate. The SOFR is already in use and is updated at 8 AM every day on the Federal Reserve Bank of New York’s website. While the transition from LIBOR has a limited but important impact for some credit unions, for larger and more sophisticated banks, which engage in high volumes of derivative transactions on a daily basis, the end of LIBOR is a big deal. In yesterday’s statement, the bank regulators emphasized that regulated institutions are free to utilize an index other than SOFR as a replacement for LIBOR. They also reiterated the need to update contract language in transaction agreements, advice which would certainly apply to those of you who use adjustable rate mortgages (ARMs) tied to LIBOR. 

While the banks may have flexibility, those of you who underwrite and sell mortgages to Fannie and Freddie should remember that both GSEs have already decided to transition to SOFR. In fact, on January 1, 2021, the GSEs will no longer purchase LIBOR ARMs. 

November 9, 2020 at 10:24 am Leave a comment

CFPB Grants A Stay of Execution to GSE Patch

One of the biggest issues in the mortgage industry is the approaching expiration of the so-called GSE Patch on January 10, 2021. The patch refers to regulations which stipulate that any mortgage sold to Fannie Mae or Freddie Mac is automatically a qualified mortgage. Yesterday, the CFPB issued a final regulation which will extend the GSE Patch past its expiry date, but there’s a catch. The patch will only last until a new regulation doing away with it takes effect sometime next year. 

There’s actually more going on here than a simple question of extending an expiring regulation. Under the CFPB’s regulations, in order for a mortgage not being sold to the GSEs to be considered a qualified mortgage, it cannot exceed a 43% debt to income limit. In addition, Appendix Q imposes strict guidelines on how that debt and income is to be determined. At the time these regulations were promulgated, the CFPB considered using criteria other than DTI, or utilizing a higher debt to income threshold. 

In June, the CFPB proposed a replacement to the GSE Patch. Under this proposal, debt to income would be replaced as a condition. Instead, a mortgage would be considered a qualified mortgage “only if the APR exceeds APOR for a comparable transaction by less than two percentage points as of the date the interest rate is set.” To be clear, this is just one of several conditions that would have to be satisfied. This regulation has not been finalized yet, but it will be in the coming weeks. Under the initial proposal, which could of course change in the final regulation, the new definition of qualified mortgage would take effect six months after the regulation is enacted. This proposal also undoubtedly warms the heart of those who want to see the outsized role that the GSEs play in the mortgage market reduced, since it would end a built in regulatory advantage they currently have.

 Like everything else, the election hangs over this proposal. If Joe Biden wins the presidency, you can bet that one of the first things a new CFPB Director will do is put a hold on all pending regulations. But in the meantime, you should at least start considering how your credit union would be impacted by this new QM rule. Six months isn’t that much time to prepare

October 21, 2020 at 9:55 am Leave a comment

FHFA Pushes Back Refinance Fee

In one of the most swift and effective lobbying efforts yours truly has seen, the Federal Housing Finance Agency (FHFA) announced it would delay imposition of a 50 basis point mortgage refinance fee on loans sold to Fannie Mae or Freddie Mac until December 1, 2020.

As I explained in a recent blog, FHFA announced on August 12th that Fannie and Freddie would begin imposing the fee on loans sold to the GSEs starting in September.  Since most loans are locked 45 to 60 days in advance of such sales, this meant that mortgage lenders, including credit unions, would have to pay the fee out of their own pocket.  The industry responded quickly and forcefully to this de-facto tax on mortgage lending.

When the fee does take effect in December it is anticipated that it will result in increasing the cost of refinancing by an average of $1,400.

The fact that the FHFA feels that the fee is necessary is the clearest sign yet that the future is far from bright for mortgage lenders who must begin absorbing the cost of forbearances and delinquencies.

 

August 26, 2020 at 8:34 am 1 comment

Refinancing is About to Become a lot Less Profitable

The mortgage industry has been in an uproar since Fannie Mae and Freddie Mac announced on August 12th that they would be imposing a 50 basis point fee on most refinanced mortgages sold to them starting September 1, 2020.  It’s not just what they did, but how they did it that has mortgage lenders so annoyed.

Crucially, this new fee will apply to mortgages with settlement dates on or after September 1, 2020.  Since most mortgage loans are locked in between 45 and 60 days prior to closing, mortgage lenders will not be able to pass the increased costs for refinancing onto borrowers.  The American Banker estimates that this will cost the mortgage industry hundreds of millions of dollars over the next two months.

Refinances have skyrocketed.  Thanks to almost non-existent interest rates there have been over 1.5 million refinances in the second quarter of 2020.  The Federal Housing Finance Agency (FHFA) could have directed the ostensibly bankrupt quasi-governmental behemoths it oversees not to impose this sharp increase on loan applications but it chose not to.

In a combined letter released Thursday, the top executives at the GSEs responded.  They said that

“Contrary to much of the criticism we have received since making this announcement, this will generally not cause mortgage payments to ‘go up’.  The fee applies only to refinancing borrowers, who almost always use a refinancing to lower their monthly rate”

This misses the point.  It doesn’t address why mortgage refinances should be made more expensive or why lenders are not being given time to adjust to these increased costs.

As I mentioned, the GSEs are currently overseen by the FHFA, an agency created in the aftermath of the mortgage meltdown to oversee Fannie and Freddie.  Like the CFPB, the agency has a single director.  Next year the Supreme Court will be hearing a case challenging its constitutionality.  Government decisions like these shouldn’t sanctioned by a single unelected individual.

August 24, 2020 at 9:26 am Leave a comment


Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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