Some in the mortgage industry are wasting no time now the 21^st Century ROAD to Housing Act has become law — leaving dozens of distinct housing bills to be implemented by Congress and industry partners.

Housing advocates broadly say that process could take years, especially with federal housing agencies operating at low staffing and resource levels after mass layoffs initiated by the Elon Musk-led Department of Government Efficiency.

In a letter sent Thursday to Joe Gormely, acting commissioner of the Federal Housing Administration (FHA), the Community Home Lenders Association (CHLA), which represents mostly small and midsize mortgage companies, made implementation of small-dollar mortgage pilot programs — as the housing bill directs — its first ask.

“Section 105 provides that FHA ‘may establish a pilot program to increase access to small-dollar mortgages’ (loans below $100,000) and gives FHA statutory authority to take three actions to accomplish that objective,” the letter emphasized, while proposing an action the FHA may take that reflects “detailed conversations with CHLA member lenders.”

Lenders typically lose money on, and therefore do not originate, small-dollar mortgages because fixed origination costs far exceed the takeout on smaller loan amounts.

“Therefore, the most effective — if not the only way — to measurably increase the origination of FHA small dollar loans is to implement subsection 105(a)(1),” noted CHLA, which authorizes ‘direct payments’ to loan originators to incentivize the origination of small-dollar mortgages.

But other regulations may undermine the efficacy of a direct-payment program that, as CHLA proposes, would forward 1.75% of a small-dollar loan amount to lenders by withholding the FHA premium customarily collected upfront and transmitted to FHA.

Loan officer compensation rules under the jurisdiction of the Consumer Financial Protection Bureau (CFPB) would prevent lenders from passing “even a penny of such increased compensation to the loan originator on a loan,” because those rules would require originator compensation to be an identical percentage for all loan sizes.

Meanwhile, Section 402 of the bipartisan housing bill specifically asks the CFPB and FHA to address qualified mortgage (QM) regulations concerning points and fees that also directly disincentivize small-dollar FHA loans.

“While it may seem self-serving to suggest direct payments to lenders that originate small dollar FHA loans, Section 105 explicitly authorizes this,” wrote the CHLA. “Moreover, even if FHA makes payments to lenders, small dollar loans will at best be only marginally profitable for mortgage lenders.”