Too Many Restrictions on Fannie Mae and Freddie Mac

The National Association of Mortgage Brokers (NAMB) has written letters to Treasury Secretary, Janet Yellen, and Banking and Finance Committee Chairs Maxine Waters in Congress and Sherrod Brown in the Senate. The letter is an alert to already present and soon pending problems that will impact agreements between the Federal Housing Finance Agency (FHFA) and Treasury. The agreements address the capital requirements of the government-sponsored enterprises (GSE) Freddie Mac and Fannie Mae.

Specifically, paragraph 8, section 5.14, limits the GSEs from placing more than 7% of their portfolios with second and investor backed mortgagees. The impact will be the agreement limits Freddie Mac and Fannie Mae mortgage purchases to 3% of mortgage re-financing and 6% of loans that have 2 out of 3 of the following characteristics:

1. Loan to Value (LTV) of 90% or over
2. Debt to Income (DTI) of 45% or over
3. Credit scores of 680 or less

Limiting loans to the criteria mentioned is drastically going to affect the amount of money available to make mortgage loans.

NAMB is asking that the agreements be re-opened and the requirements be adjusted. The impact is on availability of rental homes of finance and investors and availability on the market. At the time of the agreement nobody could have anticipated the historically low mortgage rates or the low availability of homes to purchase for investment. The limitation of GSE on purchase and investment property will exacerbate the stability of rental homes because the loans for investment properties will have to pay 1-2% more on mortgages. There are simply not enough homes on the market and prices are increasing.

The increase in lumber prices has caused newly built homes and multi-family houses to be out of reach for many low and moderate home-owners and people of color already. The COVID-19 pandemic has impacted the employment of many potential borrowers and many current borrowers and renters. As many as 11 million people are behind in their mortgages already.

The agreement fells the core mission of the GSEs duty to serve and such impact will not be felt until months into 2021 when statistics are accumulated. NAMB is trying to inform everyone that the impact is here today. NAMB is requesting that the agreement with FHFA be opened to amend the section to lessen the impact on potential borrowers and renters.

Even if housing inventory suddenly grows in the future the three criteria required are going to severely restrict the number of people who qualify for loans from Freddie Mac or Fannie Mae. In turn, there will be a loss of business to the real estate and mortgage industries. Let’s hope our congress and senate react positively to the letter from NAMB.