Key Rule Changes Announced by FHA, FHFA, and Fannie Mae
Written By: Joel Palmer, Op-Ed Writer
Several new rules and proposed rules affecting mortgage processors and underwriters were announced in the past several weeks.
The most significant of these was the recent announcement by the Federal Housing Administration (FHA) to reduce mortgage insurance premiums (MIP) by 30 basis points on FHA-insured mortgages.
The premium was cut from 0.85 percent to 0.55 percent. FHA said the reduction would benefit an estimated 850,000 borrowers in the coming year.
The MIP is calculated as a percentage of the outstanding loan balance.
FHA said borrowers with a $265,000 mortgage would save about $800 a year between the old and new premium amount. A borrower with a mortgage of $467,700 – the national median home price as of December 2022 – FHA’s annual MIP reduction will save them more than $1,400 in the first year of their mortgage.
In addition to providing overall savings to borrowers, a lower annual MIP can also help more people qualify for a mortgage.
The new MIP percentage is effective for mortgages endorsed for insurance by FHA on or after March 20.
The change applies to almost all Single Family Title II forward mortgages insured by FHA. Further, the reduction applies to all eligible property types, including single family homes, condominiums, and manufactured homes, all eligible loan-to-value ratios, and all eligible base loan amounts.
Last week, Fannie Mae announced an update to its Selling Guide that introduced a number of options to establish a property’s market value.
The new options come under the heading of “Valuation Modernization.” Fannie said in its announcement that it involves “leveraging technologies, data, and analytics to enhance the management of collateral risk, making the process more efficient for lenders, borrowers, appraisers, and secondary-market investors.”
The updated valuation options include:
Value acceptance, which is being used in conjunction with the term “appraisal waiver” to better reflect the actual process of using data and technology to accept the lender-provided value. Fannie said it is “moving away from implying that an appraisal is a default requirement.”
Value acceptance + property data is a new option that utilizes property data collection by a third party which includes both interior and exterior data collection on the subject property. The property data collection is used by the lender to confirm property eligibility, and an appraisal is not required.
Hybrid appraisals, which are based on interior and exterior property data collection by a vetted and trained third-party that is provided to an appraiser to inform the appraisal. They are permitted for certain one-unit transactions where value acceptance + property data was initially started, but changes in loan characteristics results in the transaction not being eligible for that option.
Lenders may take advantage of completion alternatives immediately. Desktop Underwriter will be updated the weekend of April 15, 2023, to support these updates.
The Federal Housing Finance Agency (FHFA) announced a proposed amendment to the Enterprise Regulatory Capital Framework (ERCF) for Fannie Mae and Freddie Mac.
The proposed rule includes 12 areas of refinement to the current capital rule. Key changes include:
A 5 percent risk weight and 50 percent credit conversion factor for cross guarantees on commingled securities.
A risk multiplier of 0.6 for multifamily mortgage exposures associated with properties with certain government subsidies.
A standardized approach for counterparty credit risk (SA-CCR) as the method for computing risk weights for derivatives and cleared transactions.
A modified procedure for determining a representative credit score for single-family mortgage exposures.
There are also new provisions related to credit scores, guarantee assets, mortgage servicing assets, time-based calls for CRT exposures, interest-only MBS, the single-family countercyclical adjustment, the stability capital buffer, and the compliance date for the advanced approaches.
The proposed rule was announced around the time that the GSEs reported significant earnings declines in 2022. At least one party says those earnings announcements should prompt FHFA and the Treasury Department to hasten the enterprises’ exit from conservatorship.
"After nearly 15 years of conservatorship, Fannie Mae and Freddie Mac remain undercapitalized,” said Independent Community Bankers of America (ICBA) President and CEO Rebeca Romero Rainey.
“The 2022 earnings reports from both government-sponsored enterprises reflect substantially decreased levels of annual net income following a turbulent year in the housing market. Without taking steps to allow Fannie and Freddie to escape government control and raise private capital, these companies will be trapped in conservatorship for the foreseeable future and will be unable to meet their regulatory capital requirements for at least another decade. This is an outcome that will ultimately prove harmful for the mortgage industry, for community banks, and for taxpayers."
About the Author
As an NAMP® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.
