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FHFA To The Future

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FHFA Updates

After Dr. Carson spoke about upcoming HUD initiatives Monday, director of the Federal Housing Finance Agency Mel Watt discussed the future of the mortgage industry and FHFA. Here are a few of the changes, some of them controversial, that are being implemented.

¿Habla Espanol? Preferred language added to the Uniform Real Estate Loan Application

One of the biggest FHFA changes announced at MBA Annual was that a preferred language question would be added to the uniform real estate loan application. “We decided that an important step forward was adding a ‘preferred language’ question as part of the much larger URLA redesign effort that provides lenders with greater flexibility and process efficiencies,” stated Director Watt.

However, he added that, “It’s probably fair to say that our decision will not be universally applauded by members of the MBA, certainly not in the short term. However, every stakeholder from whom we received input acknowledged that serving all creditworthy borrowers, including those who are not proficient in English, is the right objective.”

This is the first change that has been made to the uniform real estate loan application in almost 20 years, and many mortgage businesses may not be setup to handle language requirements. But Watt tried to alleviate these fears continuing, “that mortgage resources may not be available in languages other than English, and explains that a borrower’s indication of a different preferred language does not mean the lender agrees to communicate or transact in the borrower’s preferred language.” He later stated that this change will also mitigate certain legal issues.

The updated form will not be mandatory until February 2020.

Expanded use of credit risk transfers (CRTs)

In collaboration with MBA members and other stakeholders, the administration wants to transfer risk away from taxpayers and to the private sector. The credit risk transfer (CRT) programs have leveraged a receptive private sector market and have made an incredible amount of progress in a short period of time. They now transfer a meaningful amount of credit risk to private investors on at least 90% of their targeted, single-family loans. Since 2013 they have transferred a portion of credit risk on $1.6 trillion of mortgages, totaling $54 billion risk in force.

“One change that FHFA is currently evaluating would affect the structure of the Enterprises’ CRT debt transactions known as Connecticut Avenue Securities (CAS) transactions for Fannie Mae and Structured Agency Credit Risk (STACR) transactions for Freddie Mac,” Director Watt told the audience. “Under the proposed changes, these transactions would be issued as notes that qualify as Real Estate Mortgage Investment Conduits (REMICs). We believe this change would help broaden the investor base for these transactions and would better align the accounting treatment of when credit risk protection benefits and credit losses are recognized.”

Temporary disaster relief

Here are some focal points about FHFA’s disaster protocols for the areas in Houston, Florida, California and Puerto Rico that were affected:

  • Standard 90-day forbearance option that can be extended up to a year for homeowners who live or work in an area declared a major disaster area
  • Moratoriums on foreclosure sales and evictions are in place for declared disaster areas
  • No late fees or delinquencies reported to the credit bureaus for affected households during the forbearance period