2101 Wilson Boulevard, Suite 610
Arlington, VA 22201
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December 21, 2016
A Bold Housing Agenda to Help Working Families
Dear President-Elect Trump:
The Community Home Lenders Association (CHLA) writes to offer our recommendations for a series of bold actions your Administration could take in the first 100 days to help working families, by improving access to mortgage credit and reversing a declining homeownership rate at its lowest level in 51 years.
These actions would benefit the middle class, including minority families, younger persons saddled with student debt, and other qualified borrowers with lower FICO scores and limited down payment resources.
We offer these recommendations as the only national association that exclusively represents non-bank mortgage bankers. In the aftermath of the 2008 housing crisis, non-bank mortgage lenders stepped in to fill the vacuum created by many banks exiting the market or limiting loans to high FICO borrowers. In fact, the non-bank share of the mortgage market has doubled in that period from 25% to 50%. CHLA members – small and mid-sized mortgage lender/servicers – played an important part of this growth.
Our recommendations for immediate steps that could be taken to help working families by strengthening housing in the first 100 days of the Trump Administration are:
FHA:
(1) Cut annual premiums to .55% – to address the overcharging of FHA borrowers,
(2) End the charging of premiums for the Life of Loan – reverting to the pre-2013 policy,
(3) End DOJ treble damages actions – which discourage FHA lending, and
(4) Raise the permissible lender assumption fee to reflect inflation and compliance costs.
Fannie Mae and Freddie Mac (the GSEs)
(1) Permit the GSEs to retain a Capital Buffer – to avoid a contrived Treasury advance,
(2) Submit a recapitalization plan to end their conservatorship and re-privatize them, and
(3) Commit to fair and equal lender access in GSE reform – including:
(a) G Fee parity,
(b) risk sharing that does not favor Wall Street banks, and
(c) GSE control of the CSP.
Streamlined Mortgage Regulatory Policies, While Protecting Consumers
(1) CFPB – support a change to a Commission, with more transparency and accountability,
(2) Streamline regulatory treatment for both community non-banks and banks, and
(3) Let mortgage lenders correct compliance problems prior to CFPB enforcement action.
ACTIONS:
(1) Cut annual premiums to .55% – to end the overcharging of FHA borrowers,
(2) End the charging of premiums for the Life of Loan – reverting to the pre-2013 policy,
(3) End DOJ treble damages actions, which discourage FHA lending, and
(4) Raise the permissible lender assumption fee to reflect inflation and compliance costs.
The FY 2017 budget projects that FHA will make a net profit of 4.42% on each new loan – contributing over $9 billion to taxpayers. This is at a time when the FHA Fund has been significantly replenished, with the forward program surpassing a net worth of 3%, and early default rates are at 10-year low.
Clearly, FHA borrowers are being overcharged. The annual fee should be cut from .85% to .55% and the policy of charging premiums for the life of the loan (put in place in 2013) should be reversed – by restoring the prior policy of ending premiums when the loan is paid down to 78% LTV
The Department of Justice should end its policy carried out over the last few years of bringing treble damage claims against FHA lenders. This policy has created a significant financial disincentive for lenders to originate FHA loans and is based on a flawed methodology of sampling, exacerbated by the treble damages. This is particularly inappropriate a time when FHA early defaults are at a 10-year low.
Finally, mortgage rates are rising and the Federal Reserve recently announced an interest rate hike. As rates rise, more purchasers will find the option of an FHA loan assumption increasingly attractive. FHA just raised the permissible lender fee for carrying out an assumption from $500 to $900. However, this amount is woefully inadequate to cover the lender costs of doing an assumption, and it does not come close to keeping up with inflation since the fee was last set, much less cover increased compliance costs created by new mortgage rules. FHA should raise the permissible fee to $3,000, plus third party costs.
FANNIE MAE AND FREDDIE MAC (the GSEs)
ACTIONS:
(1) Permit the GSEs to retain a Capital Buffer – to avoid a contrived Treasury advance, (2) Submit a recapitalization plan to end their conservatorship and re-privatize them, and (3) Commit to fair and equal lender access in GSE reform – including (a) G Fee parity,
(b) risk sharing that does not favor Wall Street banks, and (c) GSE control of the CSP
The 2012 Sweep Agreement has been a failure. The GSEs continue to operate with almost no capital under a quarterly sweep of their profits – even though CBO reports they have contributed $63 billion to taxpayers to date, on top of repaying their 2008 advances. The FHFA director has warned that the GSEs’ lack of capital is their “most serious risk.” A contrived Treasury advance due to the quarterly sweep of profits could diminish investor confidence in GSE MBS, create pressure for the GSEs to tighten credit policies or raise fees, or, in the words of Director Watt, result in a “legislative response adopted in haste or without the kind of forethought it should be given.” Thus, the GSEs should be allowed to retain a modest capital buffer, either through FHFA suspension of dividends or a change in the Sweep Agreement.
More broadly, the conservatorship of Fannie Mae and Freddie Mac has gone on for more than 8 years – with no end in sight. CHLA applauded Treasury Secretary-Designate Mnuchin’s recent comments about promptly returning Fannie and Freddie to the private sector. Because of the Jump Start provision and the likely need to have an explicit government guarantee, it is probably necessary to have Congress act to effect this change. But the Trump Administration could lead the way by promptly submitting a detailed plan showing how Fannie Mae and Freddie Mac could be re-capitalized and re-privatized.
Finally, we believe it is important for the Administration to publicly commit to GSE policies which ensure the fair and equal access to GSE loans and their secondary market. This is critically important so that all lenders can serve borrowers, maximizing consumer choices and minimizing costs and rates
To this end, we believe the following policies should be a part of that commitment:
(a) G Fee (and risk sharing pricing) parity – to avoid a return to policies like volume discounts that were in place leading up to the Housing crisis for large lenders like Countrywide and big banks ,
(b) No Up-front Risk Sharing – to prevent Wall Street banks from dominating GSE loans, and
(c) The Common Securitization Platform, developed with taxpayer dollars, should not be taken away from the GSEs and turned over to an entity controlled by the large Wall Street banks.
STREAMLINING MORTGAGE REGULATIONS
ACTIONS:
(1) CFPB – support a change to a Commission, with more transparency and accountability,
(2) Streamline regulatory treatment for both community non-banks and banks, and
(3) Let mortgage lenders correct compliance problems prior to CFPB enforcement action.
As Congress battles over issues like the CFPB and Dodd-Frank and while the courts resolve the issues in the PHH case regarding the constitutionality of the CFPB structure, CHLA continues to support a change in the CFPB structure from a single Director to a Commission, and more transparency and accountability.
In the interim, we urge your Administration to quickly commit to a policy of streamlined regulatory treatment of community non-banks and banks alike. This can be done consistent with fully protecting consumers that obtain mortgage loans
While CHLA does not have any community banks or credit unions as members, we believe they play an important role in mortgage access to credit. We urge the Administration to support appropriate statutory and administrative changes to achieve a more streamlined mortgage regulation for these entities.
Non-bank community mortgage lenders are regulated and supervised by every state in which they do business, plus the agencies that supervise FHA, RHS, VA, and GSE loans (as well as GNMA). Yet when Congress created the CFPB, 99% of banks were exempted from CFPB exams and primary enforcement – but not even the tiniest non-bank community mortgage lenders were. The proliferation of mortgage rules in recent years places a greater relative compliance burden on small community lenders, which have neither the economies of scale or the consumer impact that larger lenders so. This has contributed to some community lenders exiting the business or selling to larger lenders – a bad outcome for consumers.
Thus, whether through Congressional action or future appointees to the CFPB, the Trump Administration should commit to having an exam and primary enforcement exemption for community smaller non-bank lenders that is comparable to what exists for 99% of banks. This could be done while retaining authority for the CFPB to step in pursuant to a referral from a state or other regulator if there are problems.
Additionally, bank regulators routinely work with the banks they regulate to have them fix compliance problems prior to taking enforcement action. The incoming Trump Administration should establish a regulatory policy and encourage the CFPB to adopt a similar policy with regard to non-bank mortgage lenders. The threat of significant CFPB fines or other enforcement actions for community lenders firms seeking to comply with all the rules in good faith can be a deterrent to these lenders originating loans.
The goal should be compliance, not large CFPB fines. Giving lenders a fair chance to correct compliance problems before enforcement action or fines accomplishes that goal.
We would be happy to meet with your transition team to discuss these recommendations
Sincerely Yours,
COMMUNITY HOME LENDERS ASSOCIATION