It’s been months since the Federal Housing Finance Agency (FHFA) and U.S. Department of the Treasury agreed on capital requirements allowing Fannie Mae and Freddie Mac to continue retaining their earnings. But the National Association of Mortgage Brokers (NAMB) has identified a problem with that agreement as presently constructed, and it has reached out to the Treasury Department to see if a change can be made.
The FHFA and Treasury Department originally announced new amendments on Jan. 14, essentially allowing the two government-sponsored enterprises (GSEs) to continue retaining earnings to help build their capital cushions. Buried in those amendments is a limitation on investment property and second home loans acquired by the GSEs, which the NAMB said “has had an immediate and negative impact on the housing market.”
Specifically, Paragraph VIII, section 5.14 states that Fannie and Freddie “shall limit [their] acquisition of Single-Family Mortgage Loans secured by either investment properties or second homes to not more than 7% of the Single-Family Mortgage Loans acquired by [each GSE] during the preceding 52-week period.”
“This agreement is having an impact on the availability of rental homes — financed by investors — available on the market,” wrote Kimber White, NAMB president, in a letter to Treasury Secretary Janet Yellen. “At the time of this agreement, no one could have anticipated historically low rates and the dearth of homes available for purchase for investment. The limitation on GSE purchase of investment property will exacerbate the availability of rental homes because loans for investment property will have to pay 1% to 2% more on their mortgage loans.
“There simply is not enough homes on the market and prices are rapidly increasing,” White continued. “This, with the increase in lumber prices, has caused [price increases in] newly built homes and multifamily homes [and] will place homeownership and rental costs out of reach for most low- and moderate-income borrowers and people of color.”
The NAMB also found issue with other limits placed by the agreement on loans acquired by Fannie and Freddie. Fannie and Freddie are each required to limit their acquisitions to 3% of refinance loans and 6% of purchase loans in their respective portfolios for loans that have two of the three following characteristics:
• loan-to-value ratio of 90% or over;
• debt-to-income ratio of 45% or over;
• or a credit score of 680 or less.
“The Covid pandemic has also impacted the employment for many potential borrowers and many current borrowers and renters – an estimated 11 million by the CFPB – are behind in their mortgage or rent payments,” wrote White in the letter. “This agreement fails the core mission of the GSEs’ Duty to Serve and such impact will not be felt until months into 2021 when statistics are accumulated. Mortgage brokers are on the ground in cities and towns across the nation and we are informing your office the impact on the market is here today.”