Sandra L. Thompson, Director
Federal Housing Finance Agency
MBA KEYNOTE REMARKS AS PREPARED FOR DELIVERY
Monday, October 24, 2022
11:20 AM CT
Thank you for that introduction.
It’s good to be back at MBA's annual convention. It’s also a great honor to share the stage with my colleagues Alanna McCargo and Julia Gordon.
As I’ve said before, safety and soundness and access to credit are not mutually exclusive. As a financial safety and soundness regulator, FHFA must be prepared to navigate changes to the housing finance market, and as you all know, today’s environment is quite challenging.
Mortgage rates have risen sharply—roughly 200 basis points in the last two months.
Housing supply issues continue to be a problem. There simply aren't enough affordably priced homes to meet demand.
New home sales hit a six-year low this summer and declines in the number of mortgage applications suggest this trend will continue.
This stands in stark contrast to what we saw over the last two years. In fact, the Enterprises purchased more loans in a single year during the pandemic than in any of the preceding 18 years.
That period also saw record levels of home price growth, though more recent data show significant moderation of this trend.
Nonetheless, even with these challenging times, we have taken action to support access and affordability for aspiring homeowners, while also ensuring that servicers have the necessary supports in place should homeowners experience financial hardships.
We have, for example, strengthened the Enterprises’ Duty to Serve obligations and affordable housing goals, asked them to develop Equitable Housing Finance plans, and continue to develop and implement a post-crisis loss mitigation toolkit.
We will also continue to prioritize the safety and soundness of our regulated entities. Recent work on this front includes improvements to the Enterprises’ capital framework, as well as a strengthening of the capital and liquidity requirements for Enterprise seller/servicers.
As I often say, improving access and fostering safety and soundness are twin pillars of our work. It is not a choice between the two. Instead, they can – and do – complement each other.
Now I’d like to take this opportunity to announce some important policy developments that we believe will further enhance affordability and transparency while maintaining safety and soundness.
Revisions to the Enterprises’ Pricing Framework
Pricing is a valuable tool FHFA and the Enterprises use to balance a range of priorities including capital management, a level playing field for all sellers, and support for the Enterprises’ mission to provide broad access to sustainable mortgage credit.
We have been conducting a holistic review of the Enterprises’ guarantee fee pricing this year – with a special focus on upfront fees, sometimes referred to as delivery fees or loan-level price adjustments (LLPAs).
Building on upfront fee increases announced earlier this year for second home and high balance loans, FHFA is ready to release the next iteration of this work.
Today, we are announcing the elimination of upfront fees for several categories of borrowers and affordable mortgage products, while also implementing targeted increases to the upfront fees for most cash-out refinance loans.
Those borrowers who will benefit from this fee elimination are composed primarily of purchase borrowers with limited income, borrowers with limited resources for down payments, and borrowers in underserved communities.
Specifically, we will be eliminating upfront fees for:
- First-time homebuyers at or below 100% of area median income (AMI), and below 120% AMI in high-cost areas;
- HomeReady and Home Possible loans, which are Fannie Mae and Freddie Mac’s flagship affordable housing products;
- HFA Advantage and HFA Preferred loans; and,
- Single-family loans supporting the Duty to Serve program.
We expect that approximately 1 in 5 borrowers would be eligible for these pricing benefits given the Enterprises’ recent acquisition experience.
The elimination of these upfront fees will go into effect as soon as possible. We will work with the Enterprises and announce an implementation date shortly.
In addition, the upfront fees will be increased modestly for most cash-out refinances, though some borrowers will see a reduction in these fees.
These changes for cash-out refinances will take effect for deliveries beginning February 1, 2023, to minimize the potential for any market and pipeline disruption.
Meanwhile, FHFA will continue our ongoing review of the Enterprises’ pricing framework to further the goals I discussed earlier.
Credit Score Model Update
As many of you are aware, since 2014, we have been undergoing an effort to support accuracy, innovation, and inclusion in the credit score models used by the Enterprises.
The Enterprises have long relied on Classic FICO, and it has met their basic needs.
However, as FHFA has long said, it is time to recognize the significant innovations that have occurred in credit score modeling.
Today, I am announcing that both FICO 10T and VantageScore 4.0 will replace Classic FICO, which the Enterprises have relied upon for nearly 20 years. The new models bring the benefits of innovation to the table in two ways:
- FICO 10T and VantageScore 4.0 both provide more accurate credit scores than Classic FICO. We believe the market, including investors, will be provided with an improved understanding of risk from not just one but two different credit score models.
- FICO 10T and VantageScore 4.0 are more inclusive than Classic FICO. While the Enterprises have already taken steps to expand equitable access to credit, such as enhancements to their underwriting systems, both FICO 10T and VantageScore 4.0 factor in new payment histories for borrowers when available, such as rent, utilities and telecom payments.
Requiring both credit scores, when available, will result in more borrowers that can be evaluated by the Enterprises than a single score alone, which will improve their management of credit risk while also responsibly and sustainably expanding access to credit for borrowers with less robust credit histories.
We also recognize that requiring two different scores for each borrower is a significant change. Credit scores are used throughout the lifecycle of a mortgage. Our goal is to maximize accuracy and inclusivity while ensuring a smooth transition and avoiding unnecessary complexity and implementation burden.
We are also announcing that the Enterprises will require two, rather than three, credit reports from the national consumer reporting agencies. We expect this change will reduce costs and further promote innovation while not compromising accuracy and predictiveness of a borrower’s ability to repay.
FHFA and the Enterprises will now begin a multi-year implementation phase. This will involve extensive outreach to the industry and to affected parties to inform the implementation details. We know there will be many questions about these details and the associated timelines, and we are committed to working with stakeholders to ensure a smooth and manageable transition.
The Uniform Appraisal Dataset
Another issue that we’ve been working on is modernizing the home valuation process by leveraging the vast amounts of property and appraisal data that the Enterprises collect to reduce costs and bring efficiencies while minimizing subjectivity in the process.
Our efforts were accelerated during the pandemic, and at last year’s convention, I announced that desktop appraisals, a pilot started at the beginning of the pandemic, would become a permanent option.
In further support of enhancing the public’s understanding of how homes are valued, we are committed to increasing public access to privacy-protected data. Not only does this promote transparency, but it also provides valuable insights on appraisals and drives better policymaking.
After a rigorous process to ensure protection of personally identifiable information, today, I am pleased to announce that FHFA is releasing the Aggregate Statistics Data File which is sourced from the Uniform Appraisal Dataset (UAD) as well as accompanying Dashboards of the data.
This release represents the first ever public access to the Enterprises’ aggregated and anonymized appraisal data. We view this as a significant first step in sharing the vast amount of valuation data retained by the Enterprises.
With the more than 23 million statistics about single-family home appraisals, the public will be able to:
- better monitor industry trends;
- compare appraisal gaps in minority neighborhoods across states and metropolitan areas;
- evaluate national, state, regional, and local trends in appraised values; and
- gain a better understanding for how appraised values differ among neighborhoods and housing features.
I encourage you to go to our website today and view this data and the dashboards.
FHFA, meanwhile, will continue to seek ways to release data and increase transparency, while protecting people’s privacy and personally identifiable information.
CONCLUSION
At the end of the day, our mission is unchanged: to give everyone equitable access to long-term, affordable housing opportunities, in a system that is safe, sound, and sustainable.
This, no matter what the market conditions, is how we will approach our work today, tomorrow, and in the days to come.
Thank you for the opportunity to speak with you.
I look forward to sitting down with Mark to continue the conversation.
Contacts:
Adam Russell Adam.Russell@FHFA.gov