Washington Year in Review
As we look back on the key mortgage and housing issues of 2014, three predominant themes emerge: access to credit, enforcement and regulation. With purchase mortgage lending stuck at 1993 levels, the Federal Housing Finance Agency (FHFA) has taken steps to clarify mortgage lending rules so that qualified borrowers can purchase a home. However, enforcement actions by the Department of Justice (DOJ) and other government agencies continue to dampen lender appetite for extending credit below the 700 FICO score threshold. On the regulatory front, preparation for the Consumer Financial Protection Bureau’s (CFPB) RESPA-TILA rule has the full attention of mortgage originators as they prepare their systems for compliance.
Access to Credit
In September, the Federal Financial Institutions Examination Council (FFIEC) published data on home mortgage lending transactions for the 7,190 U.S. financial institutions covered by the Home Mortgage Disclosure Act (HMDA). The HMDA report confirmed purchase mortgage activity at a 20-year low and appears to have been a catalyst for the recent policy actions taken by FHFA to address access to credit for borrowers unable to gain mortgage financing in today’s tight credit environment.
Announcing new policy on its Fannie Mae and Freddie Mac representation and warranty framework, FHFA rolled-out changes providing clearer definitions for life-of-loan exclusions, acknowledging a benefit for lenders with good underwriting track records, and setting a higher bar for misrepresentation and data inaccuracy. In public statements, FHFA also said that they will continue to work on additional improvements on an independent dispute resolution process, establishing cure mechanisms and alternative remedies for "lower severity" loan defects, and clarifying servicing representation and warranty policy.
Further, FHFA instructed Fannie Mae and Freddie Mac to reduce down payment requirements and purchase 97 percent loan-to-value mortgages. The GSEs immediately released policy bulletins opening their credit boxes to accommodate lower down payment lending traditionally associated with first-time homebuyers and providing an alternative to the higher priced Federal Housing Administration (FHA) mortgage insurance product.
Preparation for the implementation of the new CFPB disclosure rules has garnered most of the attention on the regulatory front even as rule-making for Risk Retention, Regulation AB II, and Basel III was finalized this year.
The sweeping changes to the manufacturing process of mortgage origination includes disclosure requirements such as the definition of a loan application, the limitation on fees and verification, permissible changes between disclosures, exceptions to permitted changes, recordkeeping requirements, liability under disclosure laws, and electronic disclosure requirements.
In preparing a mortgage loan estimate, changes include a new itemization of individual charges, disclosure of mortgage broker compensation, servicing disclosure; and the mortgage closing disclosures include escrows and permitted changes after loan closing.
The time allowance for preparing for the CFPB RESPA-TILA changes enables compliance testing readiness and should be front and center for mortgage company compliance officers.
A Look Ahead to 2015
A healing housing market is our forecast as we head into the New Year. With FHA’s actuarial soundness as a bellwether for a long sought stabilization in housing, the mortgage industry appears poised to regain its footing. We will keep a close eye on access to credit as the key issue to follow in 2015. Whether or not lenders gain the confidence to accept the opening of the credit box by FHFA and extend homeownership opportunities to below 700 FICO creditworthy borrowers is a key marker we will be watching.
About the Author:
Allen H. Jones serves as a Managing Director of RiskSpan, Inc. In this capacity, Allen provides consulting expertise on projects related to the United States Department of Housing and Urban Development’s (HUD or the Department) Federal Housing Administration (FHA) programs. Mr. Jones worked at HUD as a special assistant to the Deputy Assistant Secretary for Single Family Housing from 1990-1991 and as Executive Assistant to the FHA Commissioner from 1991-1992 during the time that the Federal Credit Reform Act was passed into law and implemented by the Department. In addition, Mr. Jones served as a senior advisor to the FHA Commissioner from 2003-2004. During his tenure at the Department, Mr. Jones worked on the FHA budget, was involved in the ‘pass-back’ process from the Office of Management and Budget, and provided analysis on the 1990 Cranston Gonzalez National Affordable Housing Act, which implemented a capital ratio for the FHA Mutual Mortgage Insurance (MMI) fund. Mr. Jones developed his understanding of credit reform and the credit subsidy evaluation process during his employment at HUD. As it relates to FHA and mortgage credit analysis, Mr. Jones managed Freddie Mac’s development of Loan Prospector for FHA Loans in partnership with then FHA Commissioner Retsinas and the publication of Mortgagee Letter 98-14. Mr. Jones is a frequent author in industry publications such as Mortgage Banking magazine and recently had a feature story. A former member of the Board of Commissioners of the Virginia Housing Development Authority, Jones brings over 25 years of experience in mortgage lending and housing finance, particularly related to the FHA program.
Allen H. Jones