Federal Housing Finance Agency (FHFA) Director Sandra L. Thompson pushed back again at claims that her office is seeking to penalize homebuyers with good credit in order to help those with shaky credit achieve homeownership.
In written testimony submitted this morning before her appearance before the U.S. House of Representatives Committee on Financial Services, stated that today’s housing market is pockmarked with “significant barriers throughout the country to both renters and those seeking to purchase a home.” While stating the “FHFA cannot directly control these dynamics,” the agency and the government-sponsored enterprises that it regulates were seeking solutions to these difficulties.
Thompson addressed the controversies surround the upfront fees charged by Fannie Mae and Freddie Mac, stating the issue was incorrectly presented to the general public by news organizations that were ignorant of how the FHFA operates.
“Unfortunately, certain media reports have distorted basic facts by painting an incomplete and misleading picture of these pricing updates,” she said. “These media reports often make the fundamental mistake of assuming that the pricing grids previously in place were perfectly aligned with the risks faced by the enterprises. I would like to dispel that myth: in fact, the pricing grids in effect prior to these updates had not been updated in many years and were not fully reflective of the capital framework with which the enterprises are required to comply.”
“I want to be very clear on one key point, and one that bears repeating,” she added. “Under the new pricing framework, borrowers with strong credit profiles are not being penalized to benefit borrowers with weaker credit profiles. That is simply not true. Moreover, the enterprises by law cannot purchase a loan with a loan-to-value ratio greater than 80% unless there is an approved level and type of credit enhancement. In most cases, this credit enhancement takes the form of mortgage insurance provided commercially by private insurers. Borrowers pay for this insurance in addition to the guarantee fees that are passed on to them.”
Thompson stressed the complicated nature of a homebuying transaction and sought to clarify her agency’s recent policy shifts.
“Given the admittedly complex nature of the pricing grids, it is important to offer some context so that the general public can better understand the changes FHFA made to the outdated pricing grids,” she said. “FHFA updated the enterprises’ pricing framework to both help creditworthy first-time homebuyers limited by income and wealth and to enhance safety and soundness by better aligning upfront fees with the risk exposures and the capital required to be held against these exposures. The updated pricing framework will enable the enterprises to continue building capital, thereby reducing the risk to taxpayers who have borne the financial burden of supporting them since they were placed into conservatorship in 2008.”
Thompson highlighted that the policy shifts were a win-win for all stakeholders in the housing market.
“First, the updated pricing framework supports American homeowners by eliminating the upfront fees for many creditworthy borrowers—first-time homebuyers with lower incomes, for example—and does so by increasing the fees on products that are less central to homeownership, such as second homes or vacation homes,” she said. “These targeted changes promote homeownership that is both attainable and sustainable. Second, the updated pricing framework enables the Enterprises, both of which are taxpayer-supported, to build capital in a safe and sound manner.”
Thompson pointed out that housing comprised 16% of the nation’s gross domestic product and insisted that the “updated and improved pricing framework makes homeownership more attainable for creditworthy first-time homebuyers, which strengthens communities.”
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