FHFA raises fees and rejects GSEs’ Duty to Serve plans

Sarah Wheeler: Welcome, everyone. I’m Sarah Wheeler, editor in chief at HW Media, with the latest installment of the “HousingWire Daily” podcast where our editors and reporters discuss the most compelling stories and sources they’re covering. Today, my guest is HousingWire’s senior mortgage reporter, Georgia Kromrei, who covers the federal beat for us. And wow, there’s been so much news this week from DC. Georgia, welcome to “HousingWire Daily.”

Georgia Kromrei: Thanks, Sarah.

Sarah Wheeler: So good to have you on. So, we just had a small lull over the holidays, right, when it comes to news, but this week, the FHFA, in particular, has been really busy. So, one of the biggest stories you reported on is their decision to hike fees for high-balance loans or investment property loans that are sold to Fannie and Freddie. Can you give us a recap of what they did there?

Georgia Kromrei: Yeah. So, the changes actually won’t take place until April, which was really welcome news for the mortgage industry. I mean, this is kind of similar to the changes that were made really abruptly last year in the PSPA agreements with the Treasury, if you remember. So, there were those caps on high-balance loans and second home loans. So, these are fees, not caps, and they change based on the loan to value ratio. So, for high-balance loans, the fees are gonna increase 0.25% to 0.75%. And for second home loans, they’re going up between 1.125% and 3.875%.

So, the bottom line is that the industry is just really happy that they have some lead time to change their rate sheets, that they have some time to adjust. This isn’t like an overnight change because, when that happened last year with the caps, it just, like, set off a mad scramble to find something to do with all these loans that were already in the pipeline. So, yeah. That was the big news this week from FHFA.

But they also quietly rejected the duty to serve plans from the GSEs. They were supposed to go into effect already. They had proposed them back in last May, but FHFA apparently has some problems with them. We’re not sure what the problems are. They declined to say. They don’t wanna… They sort of don’t want to, like, muddy the water during the resubmission process. But both the GSEs have to go back to the drawing board on them. So, that should be pretty interesting as well.

Sarah Wheeler: I think that was pretty extraordinary, really, because you would think that they had vetted that with them ahead of time. It doesn’t seem like the public process of submitting them should happen until there’s been sign-off or buy-off, right…buy-in at a more, you know, intra… Just personal level of like, you know, someone has vetted it with them like that, does this mean it? I mean, to submit them and then have the FHFA be like, “No, you missed the mark. Go back” seems like…it just seems unusual to me.

Georgia Kromrei: Right. Right. It is very unusual. Yeah. Technically, it’s the first time that they’ve ever rejected their plans, but it’s sort of not fair to say that because there’s only been one duty to serve cycle. So, like, you know, one of the two cycles they’ve rejected them. But yeah, it’s after a seven-month process where FHFA had listening sessions, they’ve had all this time to look at the plans. There have been…there’s been really outspoken advocacy around the plans from affordable housing groups. They, since October, have been urging FHFA to hit pause on the plan. So, it’s kind of… Yeah. It raises questions for me. Why did they wait until, you know, the plans were supposed to already be in place to tell the GSEs that they need to go back and resubmit? But again, we have no idea what their problems would be, the actual plans are. Again, the…

So, the plans, if people don’t know, the Fannie Mae and Freddie Mac have to… This is from federal law. There’s a statute that mandates that they need to help households on moderate low or very low incomes by setting a plan every three years, that’s the duty to serve plan to provide liquidity for manufactured rural and affordable housing preservations.

Sarah Wheeler: You know, the manufactured housing part is really interesting. So, when I started at housing where it’s been, you know, almost nine years, like, it just wasn’t a big part of what was on the dock… I mean, people just didn’t talk about it. We’ve had some movement there, even this year, right? Back in September, the Biden administration rolled out an initiative to take tangible steps to increase the supply of affordable housing. And also, just, you know, talking to the GSEs about how to accept those loans. So, that whole part of the housing industry has gotten more attention, in my opinion, in the last couple years than it ever did. And I think, you know, with the short supply of existing homes like stick-built homes, not what we think of as manufactured homes, I think that’s probably spurring some of that.

Georgia Kromrei: Yeah. And there’s certainly… So, advocates have asked the GSEs to do more in manufactured housing. And one of the areas that they’ve focused on is chattel loans, so loans that are titled as personal property. Most manufactured houses are not titled like normal houses. You know, the loans on them are more similar to auto loans or, you know, other kinds of personal property loans. And the GSEs don’t buy those loans. There was a pilot program in development to…I think it was Fannie Mae. It could have been Freddie Mac. They were working on a pilot program to purchase chattel loans, those loans titled as personal property, but it was abruptly halted a few years ago. The circumstances around that are kind of murky, but, yeah, it’s a question, whether the GSEs should be buying those kinds of loans, you know, especially the most affordable manufactured homes are titled as personal property.

Sarah Wheeler: According to a story we did earlier this year, like, 22 million people live in manufactured homes, which is a lot, you know.

Georgia Kromrei: It is. Yeah.

Sarah Wheeler: That’s interesting. Yeah. You know, it just feels like the duty to serve and the action that FHFA took to increase the fees on those, you know, either the high-value loans or the investment properties, the second homes, I mean, it’s all related because those fees, you know, in their… When they talk about why they did it, it’s back to…I mean, here’s the quote, “These targeted pricing changes will allow the enterprises to better achieve their mission of facilitating equitable and sustainable access to homeownership while improving the regulatory capital position.” So, really, you know, these two things are tied. They’re gonna attack…they’re gonna basically have those high-profile loans pay for some of the other things that they wanna do, or that’s the intention, it seems.

Georgia Kromrei: Yeah. I think that’s a fair interpretation. I do wanna point out that, you know, yeah, stakeholders, observers, people on the inside have said, yes, this definitely sets the stage for deeper cross-subsidies, right, for those loan products that are riskier. You know, this could be step one. And then based on, you know, how their book of business looks in a few months, they may announce some additional pricing changes. And Sandra Thompson has said publicly that she wants to do a holistic review of the GSEs pricing, which hasn’t been done in a while. So, we have a lot of reasons to believe that this is just the first step and that there is more to come. However, I think it’s really important to look at this move. The quote from FHFA, they made a point of saying that these fees won’t apply to low-down-payment programs at the GSEs. Of course, a very small amount of second home loans and investor home loans would fall into that category. So, it’s a quote that perhaps foreshadows future action, but I’m not sure it can tell us much about the specific action.

Sarah Wheeler: Really interesting. I mean, I think it really, to me, shows… Some of the affordable housing advocates, I think, have a bigger voice right now. I mean, we think about the fact that, you know, just in October, we had…and you reported on the fact that 20 housing groups were the ones that said to FHFA, you know, “You shouldn’t accept these duties to serve plans,” or at least the duty to serve that had been put out there for public comment. And one of the reasons was around manufactured housing, that it would eliminate programs to purchase manufactured housing loans, titles, personal property, and reduced loan targets for manufactured housing, as well as affordable housing and rural housing. So, I think that’s really interesting.

Georgia Kromrei: Yeah. No. It certainly seems like a win for them, although we don’t know what the…yeah. We don’t know what the changes FHFA requested are. I do know that those groups are…they’re very happy right now that the plans will not go forward. And they are actively working with the GSEs to make the changes that they would like. But it’s also interesting. So, while… So, during this interim process, well, the new plans were supposed to go into effect, you know, the beginning of the year, really, and they have to resubmit the plans. Well, instead of continuing with their old plans in the interim period, they’re actually… FHFA said that they’re actually going to implement the new rejected plans in the meantime. So, it’s sort of like, “We’ve rejected your plan, but also go ahead with your plan for now.”

Sarah Wheeler: Yeah, that’s so clear. That makes…you know, that’s very, very clear. That’s so crazy. It reminds me, when you look at just towards the end of December, we had the FHFA, you know, tell Freddie Mac, they missed their low-income refinance goal because it was less than the wider market in the number of low-income revise that he had bought. So, it’s interesting. And so Freddie Mac has 45 days to submit a plan to the FHFA, fractions it’ll take to get it back on track, right? I mean, the GSEs are… I think there’s a close microscope on them right now.

Georgia Kromrei: Yeah, I think they’re busy. And it also makes me wonder what your typical, you know, rank-and-file employee at the GSEs, what they feel right now. What are they thinking is all of these efforts to increase affordability while maintaining safety and soundness? How do they feel about sort of the new direction of the GSEs? Are there some concerns that, you know, some of the mistakes that were made in the lead-up to the last housing crisis are going to come back? I think, you know, there’s always going to be those voices that say, you know, “Oh, no, we’re opening the credit box again, and this can’t be good.” I think there are a lot of reasons why there’s really no comparison in underwriting practices. I think those questions do keep arising.

It will be interesting, particularly, I think during acting director, Sandra Thompson’s confirmation hearing. So, she was… So, the other big news that happened in the past month is that Biden nominated Sandra Thompson, the acting director, to be permanent director, which is…I found that surprising just because there is a president, a very recent president, for an acting director at FHFA to stay on for, you know, three, four years. So, in a sense, to me, it was like, “Well, what’s the rush?” But she was nominated. And I do hear from sources that her confirmation hearing will be coming up pretty soon within the next couple of months. It should be interesting. I’m sure that those kinds of questions about, you know, what is the proper role of the GSEs and how…should they be leading the market on affordability? Should they be trailing the market? What is their proper role? I think that’ll come up, and it should be really interesting.

Sarah Wheeler: It should be. I think it’s interesting what you said about, you know, what is the morale of the rank-and-file? In some ways, I can understand how if… You know, the people that I’ve met over the years who are at the GSEs, they really are tied to the mission, right, the mission of serving homeownership of…but not just home ownership, but, you know, of housing, right, of making housing available, whether that’s rent or homeownership, is really near and dear to their hearts. So, I wonder if having Sandra Thompson…because we talked about, I guess, it was this time last year. Is it that long ago, where there was just sort of an exodus of the leadership at some of the GSEs? I wonder if Sandra Thompson at FHFA gives them hope for, like, “We’re on a better track” where, you know, the mission of serving underserved communities is back intact. I don’t know because I don’t… you know, I wouldn’t, from anecdotes, know enough people who work at the GSEs, but I do think it’s interesting because people there I think are very mission-focused. That’s why you go to work at the GSEs, and that’s why you stay there and why you see people spend their entire careers there.

Georgia Kromrei: Yeah. That’s an interesting question. That was one that I posed at the…a while ago, and it was sort of like it was too early to tell, right? It’s much too early to see If Thompson’s leadership will turn the brain drain around. I mean, really, you know, at both the GSEs, I think you could argue that they’ve lost a lot of talent, they’ve lost a lot of employees who had institutional knowledge. And, yeah, like you said, a large part of why you work at the GSEs is the mission. And it’s also being able to… People have told me it’s also important to, you know, feel that you can innovate, feel that you can, you know, find new solutions for these big problems, and make a positive impact on the housing finance market. So, yeah, it should be interesting to see. I can’t say one way or another, you know, whether morale has improved at the GSEs in the past seven or eight months. But yeah, it’s a good question.

Sarah Wheeler: Right. You know, we’re seeing a very invigorated federal regulatory environment in general, right? And I think one of the things that we’ve done so much work on…you’ve done so much work on is the FHFA’s work on appraisal bias. You now, they’re part of that inter-agency task force looking at appraisal bias. And I feel like it’s exciting to me as someone who’s covered this space for a while to see that, you know, really taking off, really getting some attention. We’ll see what the end results are, but it is interesting to see. I know, you know, just December 14th, you wrote an article about the FHFA takes a swing at racial bias in appraisals. What they’re hoping to add to that conversation is part of that inter-agency task force. So, love to have any comments you have on that.

Georgia Kromrei: Yeah. So, I do have a follow-up to that story coming pretty soon. So, there should be more news on that front sort of…not everyone loved that report. And there’s been, you know, quite a bit of pushback from appraisers on that report from FHFA. And there should be also more news about the appraisal task force. They are supposed to issue a report, I believe in the next month. So, that should be very interesting because they’re not just going to be issuing a report sort of diagnosing what they see as the problem, but they’re also going to be making policy recommendations. And they have a mandate to, you know, really make some changes. So it’s not as if we’re waiting for just a report. It could be substantive changes on the way for the appraisal industry.

Sarah Wheeler: Great to hear that that follow-up is coming, and it’ll be interesting to see what those really concrete actions that they’re going to recommend look like. We know this is such a thorny issue. I mean, appraisals, in general, it’s hard to sort of wrap your hands around getting to true value because you have so many subjective parts of it. Even as we try to have more, you know, automated valuation models, even as we try to figure out what it is, it’s a thorny problem.

Georgia Kromrei: Yeah, absolutely. And one that inspires a lot of… I think there’s just a lot of emotion in the issue too because it’s hard to hear that federal regulators are, you know, trying to diagnose and solve problems in your industry. You might feel singled out and, you know, quite defensive. And so I think it’s been a struggle to make sure that those efforts are productive, constructive, and not just sort of, you know, appraiser bashing. I think, yeah, there will be more forthcoming on that, but I think that some appraisers do feel like the report from FHFA was not necessarily fair, didn’t properly situate the data that they presented in any sort of context. It did not provide, you know, any…what the report did was it showed some examples in free-form comment boxes in appraisal reports where appraisers had written things like… Appraisers had…

Sarah Wheeler: They were cringe-worthy when you read what they…

Georgia Kromrei: Yeah. They were cringe-worthy. Some things were…you know, like, they referenced a neighborhood being homogenous, or, you know, the crime in a certain neighborhood, or an immigrant community was there or… Yeah. They were cringe-worthy, and they should not have been in appraisal report. But people who are in the appraiser industry who are kind of working with…at the same time, like, working with federal regulators to figure out, you know, “How are we going to diagnose this problem? What do we do? How extensive is this problem?” say that it’s just really not helpful to have these examples without any context. Where did these things happen? Were these comments made in the last six months, or the last six years, or back in 2013? Because remember, the GSEs have been getting…have been… This data has been stored digitally since 2013. So, it’s not clear what the time period is. It’s not clear if this was, you know, one appraisal firm, one appraisal management company, one lender, one kind of transaction, where it happened, you know, what the entire comments might have been. And also, I have sources who say that the comments may not have been from appraisers, but from real estate agents who [crosstalk 00:22:31]

Sarah Wheeler: Oh, that’s interesting. So, in those free-form comment areas?

Georgia Kromrei: Yeah.

Sarah Wheeler: Okay.

Georgia Kromrei: So, they say that lenders typically…that some lenders ask for the real estate listing to be included in the appraisal report sort of as, like, you know, accompanying supportive documentation for when appraisers are showing what comps they chose to reach their value. And the argument is that the comments were taken not from appraisers’ comments, but from those listings. So, I don’t… That might not hold water, but it’s also not clear from the report where exactly…what the context was for those comments that they highlighted.

Sarah Wheeler: You know, from our perspective, we wish that things were just more open. I mean, the fact that, you know, appraisers wish that the context was given, it’s true for so many of these stories that we’re trying to report on where it’s like, if it was just…if there was more transparency, it would just be so much more helpful, not just to us as reports, but the reason that you’re reporting out, the reason we’re trying to, you know, give information on it is because it seems like a black box in so many ways.

Georgia Kromrei: Yeah. That’s an apt description. And people have called it a black box, for sure. Yeah. There’s been many calls, and we have also asked for various federal regulators and agencies to release more data on appraisals. You know, I think we’re just gonna have to wait and see what the appraisal task force comes out with and go from there. Yeah.

Sarah Wheeler: Well, I appreciate your reporting so much on this. It’s been great, and I look forward to the things coming out. If people want to reach you as a source, how do they do that?

Georgia Kromrei: You can send me an email at [email protected].

Sarah Wheeler: Awesome. Because we know you have done a great job of source development and have contacts throughout the federal agencies and departments that are over housing. So, Georgia, thanks so much. Great work. And we look forward to seeing what’s next.