The Mortgage Bankers Association on Tuesday sent a letter to Treasury Secretary Janet Yellen and Federal Housing Finance Agency Director Mark Calabria expressing concern over several amendments to the Senior Preferred Stock Purchase Agreements announced in January, including changes to investment properties. The MBA said several of the revised PSPA amendments could cause “unnecessary disruptions in the housing finance system,” and asked for a meeting to cover these topics.
One key issue is the PSPA amendment that limits Fannie Mae and Freddie Mac from buying single-family loans secured by investment properties or second homes. The amendment caps investment property or second home acquisitions at 7% of the GSEs’ total single-family acquisitions, a limit that the MBA fears could put lenders in a bind given current, higher activity in those loans since the start of 2021.
Demand for investment properties and vacation homes has risen 84% year over year – more than double the demand for a primary home, according to a recent report from Redfin.
“It is not clear that private market participants currently have the capacity or resources to absorb the entirety of the gap between the Enterprise limits and the volume needed to satisfy underlying demand,” the MBA letter states.
“Based on reports MBA has received from a broad cross-section of lenders, it does not appear that the Enterprises have developed clear details or timelines associated with their plans to ensure compliance with these limits. Lenders have reported, for example, different requirements communicated to them by Enterprise personnel regarding their per-lender limits, the dates by which they must be compliant, and the timeframe over which they are being measured,” the letter states.
The MBA notes that the PSPA’s lack of clarity may have already generated negative market impacts, outlining four specific areas of concern:
1. Reports that the GSEs may be implementing limits on a per-lender basis rather than across their aggregate books of business, which “represents an overly conservative method of achieving compliance,” according to the MBA.
2. Disproportionate challenges for some lenders — especially smaller lenders — to meet lender-level requirements set by the GSEs, due to their footprints in certain geographic markets or their lack of access to non-enterprise outlets for these loans.
3. Reports that the GSEs are requiring some lenders to adjust loan deliveries as early as April. The MBA noted these loans are already locked and that lenders “cannot reasonably alter their delivery mixes on such short notice.”
4. Inconsistencies in the requirements being communicated to different lenders, which raises concerns about equitable treatment of lenders of varying sizes, charters, or business models.
To reduce these market pressures, the MBA is advocating for Treasury and FHFA to allow the GSEs to more gradually manage their aggregate books of busines below the 7% limits.
“Under a more flexible approach and timeline, the Enterprises could make necessary adjustments to their automated underwriting systems, which would alleviate concerns about existing loan pipelines and better protect against market disruptions,” the MBA letter states. “Gradual changes also would provide time for private capital alternatives to develop the operational capacity to serve these market segments.”
The MBA is also concerned about GSE compliance with the revised PSPA provision regarding Freddie and Fannie’s acquisition of loans that have certain characteristics: a combined loan-to-value ratio at origination above 90%, a borrower debt-to-income ratio above 45%, or a credit score below 680. The MBA letter asks for flexibility in satisfying these requirements to “protect against unnecessary market frictions.”
In addition, the MBA also warned that cash window limits under the PSPA amendments could have unintended consequences for borrowers, lenders, investors, and the GSEs. The revised PSPAs require that beginning Jan. 1, 2022, the GSEs shall “not acquire for cash consideration from any single seller…during any period comprising four calendar quarters, Single-Family Mortgage Loans with an unpaid principal balance in excess of $1.5 billion.”
The MBA letter states that this requirement will force up to several dozen lenders to curtail their use of the GSEs’ cash windows. That, in turn, will force these lenders to increase their use of mortgage-backed security swaps, sales of loans to correspondent aggregators, or shifting of their business mix to other loan products.
The MBA said it is focused on possible adverse market outcomes to this amendment, including:
- An increase in Enterprise concentration risk
- Increased costs for lenders
- Resistance from the GSEs when lenders seek to engage in MBS swaps
- The removal of an important liquidity tool
- Negative effects for the Uniform MBS market
The MBA letter seeks clarification on how the $1.5 billion threshold was decided on, especially given its impact on numerous lenders. It also questioned if the threshold was related to COVID-19 concerns and therefore might be repealed once pandemic effects subside.
The MBA also asked: “Given that the Enterprises have steered some lenders away from engaging in MBS swaps, will FHFA require the Enterprises to establish clear and objective standards for lenders that choose to transition to this execution?”
The last area of concern raised in the letter deals with new limits on the acquisition of multifamily mortgages to $80 billion in any 52-week period. The MBA asked for flexibility under changing market conditions, citing liquidity concerns.
