Opinion

Housing Activists Poised for Incremental Gains

This past week saw three new developments that have excited the affordable housing advocacy community. First, it was reported that the Federal Housing Administration (FHA) is beginning deliberations regarding whether it should reduce the annual mortgage insurance fees charged to consumers in an attempt to expand access to mortgage credit for first time and low- and moderate-income home buyers. An expected November report outlining the state of the mutual mortgage insurance fund is likely to show that its solvency has improved faster than expected, which housing advocates and many within the agency are using as impetus to lower the fees which have increased several times since 2010.

Second, Secretary of Housing and Urban Development Julian Castro made an off the cuff remark at an event on Thursday that he believed Federal Housing Finance Agency (FHFA) Director Mel Watt will begin to “kick start” the affordable housing trust funds in the near future. These funds, the National Housing Trust Fund and the Capital Magnet Fund, were authorized in the crisis-era Housing and Economic Recovery Act but have never been capitalized because Fannie Mae and Freddie Mac (the GSEs) were taken into conservatorship before any money could be transferred. Former Acting FHFA Director Ed DeMarco then refused to capitalize the funds during his long tenure.

Third, there is increasing chatter that Watt will soon announce changes to FHFA policy regarding its practice of requiring lender repurchase, or “buy back,” of failing mortgage loans guaranteed by Fannie Mae and Freddie Mac as well as issue a request for comment regarding the risks and benefits of the GSEs purchasing and providing guarantees to loans with as little as a three percent downpayment. More clarity and loosened enforcement of buy back rules are meant to encourage lenders to expand credit to individuals with a less than pristine credit history and lower incomes. Reducing the minimum downpayment requirement would also allow the GSEs to use their size and scale to take pressure off of the FHA as the largest provider of mortgage credit guarantees for low-downpayment loans.

Although each of these actions concern separate spheres of housing finance policy, they collectively point to continued efforts by the Obama administration to expand access to credit and affordable housing. They also show that the current crop of appointees led by Watt and Castro are determined to maintain a robust federal government role in the housing finance system for at least the next two years. In their minds, if reform is not possible through legislation, then they intend to make the best of the status quo and use it to benefit their target constituencies — low- to moderate income households and communities of color.

The potential moves by FHFA and FHA also have brought to light a subtle split over how to address the current restricted credit environment — banks are primarily asking for reduced regulation and legal safe harbors to offer more credit, but many activists are urging that the lending rules remain in their current strict form and believe that it is in large part an economic problem that is preventing expansion — hence the emphasis on the government reducing its fees and allowing reduced downpayments. How to balance this tension will be a key question for the successor of FHA Commissioner Carol Galante, who is stepping down at year end. In the meantime, we expect that today’s (October 20th) joint appearance by Castro and Watt at the Mortgage Bankers Association conference will offer more details on many of these developments.

 

 

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