If confirmed, Sandra Thompson will become the Director of the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac in conservatorship and the Federal Home Loan Bank System. Established in response to the financial crisis of 2008 as an independent regulatory agency, FHFA is responsible for oversight of the $7 trillion mortgage finance market. Decisions made by FHFA could play an important role in facilitating or impeding stated Biden administration goals, from increasing the supply of affordable homes to addressing persistent racial and ethnic gaps in the homeownership rate.
BPC asked members of our Housing Council, a bipartisan group of over 20 housing experts, to share their most pressing questions as the Senate Committee on Banking, Housing, and Urban Affairs considers the nomination of Sandra Thompson to be the next FHFA Director. Read their questions below:
The GSEs are responsible for providing needed liquidity and stability to the housing markets, as well as supporting safe and affordable housing. Given the complexity and scale of risks associated with the mission of the GSEs, how will you ensure that they recruit and retain talent, as well as boost employee morale during these challenging times?
A year ago, the Biden Administration published an executive order, which specifically identified minority communities and poor rural communities as the people and places that our government has historically disadvantaged through our laws and public policy choices. These communities are spread across the country, not only in our biggest cities. Large concentrations of poverty exist in rural places like Appalachia, the Mississippi Delta, Indian Country, and along our Southern Border in the Colonias. Many of these underserved rural communities are also Black, Latino, and Native American. Eighty-five percent of “persistent poverty” counties in the United States are rural. More than 21 million Americans live in these counties, and 60% of them are racial and ethnic minorities. FHFA, and the GSEs that it oversees, have a crucial role to play in revitalizing these communities and helping all Americans have access to the American Dream. Building on the equitable finance plans and other initiatives FHFA announced in September, what will you do to challenge the GSEs to more effectively serve these minority communities, underserved rural communities, and the first-time homebuyers who call them home? How will you lead FHFA to strengthen “duty to serve” to achieve more meaningful capital flow to these communities?
First-time, and especially first-generation, low-income homebuyers face an uphill battle when it comes to achieving the dream of homeownership, especially if they reside in a rural area. FHFA and the GSEs have been working to make that uphill battle a little easier over the past several years, often in partnership with on-the-ground nonprofit organizations that work with prospective homebuyers directly. The GSEs have developed borrower considerations and product enhancements to make mortgages more obtainable and affordable, but nonprofits are still reporting that these changes have not been game changers for the people and areas they serve. In fact, many nonprofits have found it necessary to commit resources to mortgage assistance funds which assist these homebuyers with down payments or closing costs. These programs are proving effective at getting prospective buyers over this initial financial hurdle, but funds are limited and hard to replenish—a difficulty exacerbated in rural areas with less nonprofit capacity. What steps should the GSEs take to enhance market and borrower considerations so that their products are more accessible to low-income Americans?
For decades, the Federal Home Loan Banks’ Affordable Housing Program has been successful in providing funding for the construction and rehabilitation of housing for low-income Americans. The program has served as a particularly important funder of homeownership programs, allowing FHLBs to support nonprofits across the country in helping their neighbors become homeowners, many for the first time. However, the program has several layers of regulations and direction, which allows each FHLB to have different policies and procedures. The effect is that year after year these policies effectively preclude the program’s use in communities that are already hard to serve, such as those in rural America and persistent poverty counties. What steps can FHFA take to ensure that the FHLBs’ Affordable Housing Program is as effective as possible in meeting the needs of hard-to-serve communities?
Regulators as well as non-profit and for-profit stakeholders have identified Special Purpose Credit Programs as tools to help close the racial homeownership gap, as BPC’s Housing Council outlined in a letter to HUD in July. In 2021, the Consumer Financial Protection Bureau and HUD issued separately issued guidance on Special Purpose Credit Programs and encouraged lenders to develop these programs. What is FHFA’s position on Special Purpose Credit Programs and does the agency plan to follow suit with the CFPB and HUD and issue guidance on their use?
As noted in a recent BPC report, with less savings, fewer assets, and less inherited wealth, many people of color, particularly low-income Black and Hispanic households, cannot afford down payments—making these costs one of the most significant barriers to achieving homeownership. What steps is FHFA taking to ensure nonbank and bank lenders alike have the flexibility to develop down payment assistance programs? Will FHFA continue the practice of allowing the GSEs to pursue pilots to address barriers to homeownership?
Under your leadership as Acting Director, FHFA has already announced some significant changes, including the elimination of the Adverse Market Refinance Fee, a move intended to aid borrowers in this unique housing market, higher loan limits for areas across the country, and significant hikes in upfront fees on most high-balance mortgages and those for second homes. Can you outline what analyses were conducted to support those decisions, including assessments of their impact to market volume, the risk exposure of taxpayers, and overall financial stability? In today’s ever-changing climate and economy, how will you ensure fair and balanced decision making to maintain market stability moving forward? Will you seek outside input from those affected when making significant, market-altering adjustments?
In recent years, the GSEs appear to have been moving towards complete “risk-based” pricing on their respective loan products. Do you have a perspective on the value of offering cross-subsidized affordable home loans, rental housing products, or other affordable housing initiatives going forward?
Since 2013, Fannie Mae and Freddie Mac’s credit risk transfer (CRT) programs have been used to shift a significant portion of mortgage credit risk to private sector investors, reducing the exposure of the federal government to credit risk without disrupting the liquidity or stability of mortgage secondary markets. Freddie Mac “Connecticut Avenue Series” issuances have totaled $1.78 trillion since inception and Freddie Mac’s “Structured Agency Credit Risk” issuances have totaled $2.3 trillion. Yet the amount of CRT in the market has fluctuated. For example, Fannie Mae halted issuance from March 2020 through September 2021 after COVID-19 induced spread widening and FHFA released reproposed capital rules. What do you believe is the appropriate role of risk transfer programs and is there an opportunity to utilize such programs to support additional affordable housing initiatives?
The nation’s housing shortage has continually worsened since the early 2000s, with new housing production lagging behind population growth. In 2021, the nation faced an estimated shortage of 5.5 million to 6.8 million units, according to research commissioned by the National Association of Realtors. In many ways today’s housing affordability crisis is very different than any housing crisis of the past in that supply continues to lag demand dramatically. How can FHFA and the GSEs expand upon their efforts to support affordable housing supply in today’s market? To what extent do you foresee FHFA working alongside HUD to establish a national definition for what constitutes “workforce housing?”
Much like after the foreclosure crisis, the effects of the pandemic have fallen disproportionately on borrowers of color who are more likely to be in distress on their mortgages than white homeowners. This has led industry and advocacy groups alike to push the GSEs to play a proactive role in ensuring borrowers have loss mitigation and home retention options prior to foreclosure, so that as many borrowers as possible can stay in their homes. Yet, a recent report from the CFPB shows race and national origin data on who is being offered what options, as well as the outcomes for consumers, is lacking. For properties that become GSE real estate owned property (REO) after a foreclosure, questions remain about what role FHFA will play in monitoring the companies responsible for the maintenance and marketing of all of the properties for compliance with fair lending laws. Will you work to ensure that distressed borrowers are offered every option to retain their home, and that REO properties in neighborhoods of color are maintained and marketed in a nondiscriminatory manner?
The GSEs impose Loan-Level Price Adjustments (LLPAs), which, many affordable and fair housing advocacy groups argue, (1) increase the cost of mortgages for people of color, who more often lack the wealth for a downpayment compared to their white counterparts, (2) consider factors which are not related to the key risk features of most loans that were more likely to experience default in the foreclosure crisis, (3) work to price out potential borrowers from the mortgage market entirely, (4) unfairly place the burden of the GSEs’ future financial recovery and catastrophic risk on Black, Latino, Asian-American and Pacific Islander, and Native American borrowers, and (5) are not necessary for safety and soundness reasons or to recoup the GSEs’ lost capital. What do you plan to do with LLPAs, including steps to ensure they do not unduly prevent borrowers of color from becoming homeowners?
Nearly 1 in 9 people in this country are not proficient English speakers. Experience—and previous work at FHFA—shows us that these people face considerable challenges in the mortgage process, which is complex and highly technical. That is true at the origination stage, when people may not understand the terms of the loan they are being offered or be able to tell when the terms of the mortgages delivered to them are different than the terms they were promised. It is also true in loan servicing, when borrowers who encounter difficulties paying their mortgage need help from their servicer to work out an affordable loss mitigation option. During the foreclosure crisis, these borrowers faced enormous challenges in getting the information and assistance they needed from mortgage servicers. The first step in addressing these problems is for mortgage lenders and servicers to collect information about borrowers’ language preferences and transmit that information with the loan files over the life of the loan. A few years ago, as part of an overhaul of the Uniform Residential Loan Application (URLA), FHFA developed and vetted a question about borrowers’ language preference. FHFA later removed that question from the URLA and placed it on a separate form that lenders may use or not, at their discretion. Do you think lenders selling loans to the GSEs should collect and transmit information about borrowers’ language preferences as part of the loan files? What other steps might FHFA take to help address the needs of borrowers with limited English proficiency?
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