Sep. 7: Letters about GSE reform, HFAs & affordable housing, and appraisal waiver drama

Everyone is watching overall applications drop, despite low rates, as the “pig in the python” of refis makes its way through funding departments. Winter is coming, and lenders, after a spate of good months, are wondering what October and onward will look like due to “refi burnout.” So I continue to be asked about programs to help buyers. For example, here is a mortgage buy down program in Oklahoma for those inside tribal jurisdiction. What about those not on Indian lands, or needing down payment assistance?

I received this timely note from Greg Zagorski who, being a Senior Legislative and Policy Associate, focuses on homeownership issues for the National Council of State Housing Agencies (NCSHA), which represents state housing finance agencies (HFAs). “You should remind your readers that state housing finance agencies (HFAs) are the premier source for down payment assistance.  In 2018 alone, HFAs provided down payment assistance to nearly 120,000 low-and moderate-income borrowers throughout the country.

“As state-charted entities with clear public missions and jurisdictions, HFAs are able to structure their down payment assistance programs to best meet the needs of their constituents. HFAs are run by politically appointed leadership and/or boards of directors and are subject to regular oversight from their governors and state legislatures to ensure they are effectively fulfilling their affordable housing missions. HFAs have proven over many years that affordable lending, including with down payment assistance, is responsible lending when done right. Data collected by NCSHA shows that HFA DPA loans insured by FHA have a serious delinquency rate notably lower than the rate for all FHA loans that included DPA from a government program.

NCSHA looks forward to working with FHA on its forthcoming rulemaking on down payment assistance to ensure that proven, publicly accountable governmental entities can continue to provide assistance to buyers who need it. Lenders can learn more about the state HFA programs in their states here.” Thanks Greg!

Property Inspection Waiver drama?

“Rob, are you hearing that Freddie bifurcation programs are not accepting DU PIWs (Property Inspection Waiver), that Fannie is going to tweak its program, and that it’s going to get worse? I’ve heard from others in the business that there are rumors about how, in the primary markets with borrowers, the PIW or Freddie’s ACE (Automated Collateral Evaluation) are great things but are discriminatory, and that roughly 10% of loans are receiving them. Some receive it and some don’t. One of our MLOs had two great borrowers with high income and high credit going for $400,000 loans. One was a 79.9% LTV loan. The MLO did not expect to receive a PIW and received it via DU. The other loan was a 40% LTV but received no PIW. It made no sense. There is hearsay that PIWs are based off of other appraisals in the area.

For example, UWM launched Easy Valuation in 13 key areas as its findings showed that more than half of the loans eligible for Easy Valuation received a waiver and then rolled this out across the nation. “Not only does Easy Valuation give your borrower a 50% chance at an appraisal waiver, it saves them time and money — even if they don’t get one. The entire process can take as few as two business days and doesn’t cost more than $290 — that’s hundreds less than a typical appraisal.” This cheaper, streamlined appraisal is advertised to cut the price and turn times. “With Easy Valuation worst case cost for appraisal is $290 and max time frame is 4 business days!” The appraisal is done in two parts (worst case) which involves the AMC sending out an inspector to the property to collect data and inspect, after which the results are sent back to UWM where DU is re-run.

“There is confusion at our company, however, about what is happening in the secondary markets. We realize that Fannie & Freddie are proud of their PIW technology. And we understand their demand for data on all types of loans. But Wells Fargo, Chase, AmeriHome, PennyMac, and others seem to be jockeying for position regarding bifurcated execution, PIW fees, not accepting PIWs for some products. There are rumors about wholesaler Provident Funding charging .250 on loans with PIWs, and that Freddie’s ACE program is going to change.

“We’ve heard that Freddie has never accepted PIW waivers but I understand it is under consideration only on loans that also receive a Freddie ACE waiver. Freddie is rumored to be about to expand its ACE waiver requirements and more loans including even higher LTVs will be getting waivers. We’ve been told that PIW and ACE waivers are based on value information that they both have, and all Lenders have been uploading that information for years. It does not matter what your LTV is if they don’t have that information.

“We’ve also heard that Freddie Mac is taking the ‘waterfall’ approach to appraisals, and both Fannie and Freddie have pilots underway. It would work something like this. The first level is ACE, the second level is Freddie has value information but needs condition information (drive by? 2075?), the third level might be desktop review by an appraiser but allowing someone like the home inspector to do measurements and pictures (bi-furcated pilot model), and 4th level would be the full appraisal. What have you heard?”

Wow, that is quite some note. You should ask each of your sales reps at the investors and Agencies about the latest. And if anyone wants to shoot me over what they’re seeing or their thoughts, happy to publish anonymously or with your name.

Government Sponsored Enterprise (GSE) reform

Everyone, and their brother, weighed in with general thoughts (without opining too much, most pointing to their previous efforts toward reform) on the Administration’s Housing Finance Reform reports to address the nation’s housing finance system, including FHA’s, Freddie’s, and Fannie’s status going forward.

MBA President Bob Broeksmit sent, “MBA will be doing a deep analysis of each report and how the proposals could impact our industry. In the meantime, here is a link to our press statement, as well as links to the HUD and Treasury housing finance reform plans.”

“USMI applauds the U.S. Treasury Department (Treasury) and the Department of Housing and Urban Development (HUD) for releasing their comprehensive Housing Reform Plan and Housing Finance Reform Plan (“Plans”) that together outline needed reforms to the housing finance system. While USMI looks forward to reviewing the Plans in greater detail, we particularly appreciate Treasury and HUD identifying specific areas where the Administration can focus its efforts to put the housing finance system on a more sustainable path ahead of comprehensive legislative reform. Many of the actions proposed by the Administration’s Plans align with USMI’s principles for Administrative Reform, including our position that these actions could further reduce taxpayer risk by increasing private capital within the financial system, level the playing field between the GSEs and private market participants, provide greater transparency regarding GSE pricing and practices, and ensure that consumers have access to affordable and sustainable mortgage finance credit.

“The Milken Institute Housing Finance Program team earlier this year released A Blueprint for Administrative Reform of the Housing Finance System in anticipation of the reform efforts. Similar to the newly released plans, the team recommended administrative measures to strengthen the housing finance system in the near-term and pave the way for bipartisan congressional action to finish the task. Like Treasury, the team also noted that the administration could undertake significant reforms in the absence of legislation. The team previously set forth principles for legislative housing finance reform in its 2018 paper, Bringing Housing Finance Reform over the Finish Line. We are poring through the plans and will spend the coming weeks and months collaborating with industry and government stakeholders…”

CEI senior fellow John Berlau said, “The Trump administration’s housing finance reform plan contains many positive steps to both reduce the government’s role in the housing market and to help ensure a vibrant and competitive housing sector, including some that I recommended in my 2017 paper on GSE reform. These steps include ending the ‘Third Amendment’ that drains capital from GSEs and puts them at risk of another taxpayer bailout. The plan also recommends reducing red tape encumbering the non-GSE mortgage market, such as the Dodd-Frank financial law’s ‘qualified mortgage’ and ‘qualified residential mortgage’ provisions, which give Fannie and Freddie an unfair advantage and hold back the housing sector overall. The plan’s call for creating explicit guarantees is problematic, though, as they would likely become a floor, rather than a ceiling, for government housing support. We look forward to productive discussions with the administration and members of Congress about much-needed housing market reforms.”

The National Association of Federally-Insured Credit Unions (NAFCU) President and CEO Dan Berger sent, “We appreciate the Trump Administration’s commitment to reforming our housing finance system by working to promote competition and putting an end to taxpayer bailouts. Moving forward, NAFCU will continue to work with the administration, Treasury and Congress to ensure guaranteed access to the secondary mortgage market for lenders of all sizes, loan pricing at the GSEs that is based on quality not quantity, and the establishment of an explicit government guarantee at the GSEs to provide certainty in the marketplace.”

“The National Association of Realtors® thanks President Trump and his administration for initiating thoughtful, genuine effort toward housing finance reform. We look forward to reviewing the proposal in more detail and are optimistic that, at a minimum, the White House’s efforts will shed light on the remaining mile markers on the path to reform, along with the critical role the GSEs and Federal Housing Administration play in America’s housing market.”

Compass Point Research & Trading, LLC’s Isaac Boltansky observed, “At the highest level, the reports outline policies that would benefit private capital providers in the mortgage market, modestly reduce the government’s market footprint, and ultimately end the GSE conservatorships. The reports should be viewed as directionally positive for private capital operators – from mortgage insurers to mortgage REITs – and as a meaningful mile marker on the road to ending the GSE conservatorships.

“The Trump administration is clearly committed to recapitalizing the GSEs and ultimately ending the conservatorships, but there are still political and practical potholes on the road to resolving this issue. On the bearish front, this report did not signal the immediate end of the Net Worth Sweep, was purposefully amorphous regarding the recapitalization process, and left many key questions unanswered. On the bullish front, the Trump administration stated its commitment to action, referenced reducing or eliminating the senior preferred’s liquidation preference, avoided overly onerous footprint reduction proposals, and signaled an imminent change to the PSPAs that would start recapitalizing the GSEs via retained earnings.

“The reports should be viewed as directionally positive for mortgage insurers. At the highest level, we note that: (1) the UST report included language that we considered a head nod toward deeper cover mortgage insurance; (2) the HUD report focused intently on defining the FHA’s role in the market; (3) the UST report included a proposal calling for a “policy and process” relating to GSE pilot programs; and (4) there were references to conventional-to-FHA refinances. These proposals should be viewed favorably for the mortgage insurance industry, but we caution that action is necessary at both the FHFA and FHA to turn these talking points into action.

“Ultimately, the heavy lifting in this particular effort will be done behind closed doors with the formulation of recapitalization plans for each GSE and then PSPA negotiations between the UST and FHFA.” Good job, Isaac!

(Warning: Don’t read if easily offended. And don’t send me an email saying that you read it anyway and you were offended.)

There were 3 good arguments that Jesus was Black:

1. He called everyone brother.

2. He liked Gospel.

3. He didn’t get a fair trial.

But then there were 3 equally good arguments that Jesus was Jewish:

1. He went into His Father’s business.

2. He lived at home until he was 33.

3. He was sure his Mother was a virgin and his Mother was sure He was God.

But then there were 3 equally good arguments that Jesus was Italian:

1. He talked with His hands.

2. He had wine with His meals.

3. He used olive oil.

But then there were 3 equally good arguments that Jesus was a Californian:

1. He never cut His hair.

2. He walked around barefoot all the time.

3. He started a new religion.

But then there were 3 equally good arguments that Jesus was an American Indian:

1. He was at peace with nature.

2. He ate a lot of fish.

3. He talked about the Great Spirit.

But then there were 3 equally good arguments that Jesus was Irish:

1. He never got married.

2. He was always telling stories.

3. He loved green pastures.

But the most compelling evidence of all – 3 proofs that Jesus was a woman:

1. He fed a crowd at a moment’s notice when there was virtually no food.

2. He kept trying to get a message across to a bunch of men who just didn’t get it.

3. And even when He was dead, He had to get up because there was still work to do.

Can I get an AMEN?!!

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Rob Chrisman