Last week, the Federal Housing Finance Agency (FHFA) issued a notice of Proposed Rulemaking on Fair Lending Oversight. This proposed rule would codify in regulation the FHFA’s fair lending oversight requirements for Fannie Mae, Freddie Mac and the Federal Home Loan Banks and the requirements for these entities to maintain Equitable Housing Finance Plans (EHFPs).
The announcement by the FHFA was greeted enthusiastically by the Underserved Mortgage Markets Coalition (UMMC), a confederation of affordable housing organizations, which has advocated for a rule similar to the FHFA’s “Duty to Serve” regulation that would mandate the release of EHFP performance data.
Weekly Real Estate News spoke with Jim Grey, senior fellow at The Lincoln Institute – the organization that fueled the founding of the UMMC – to discuss the impact of the FHFA’s actions.
For the benefit of those who have not been keeping track of this issue, what are the Equitable Housing Finance Plans?
It’s on the same model as Duty to Serve, which I wrote when I worked at the FHFA. When Congress enacted Duty to Serve, there was a provision in the law that said the FHFA could not set any specific numeric targets for Fannie and Freddie to hit. So, I was posed with the regulatory challenge: how do I regulate some something where I can’t set any specific numeric targets? I said, “Okay, I’ll use a strategic planning model. You set the targets, I’ll evaluate the targets, and then I’ll evaluate how good a job you did at hitting them.”
That’s why Duty to Serve was organized that way, and I guess it has been successful enough that they decided to also organize Equitable Housing Finance that way. However, there is no statutory prohibition against FHFA setting specific numeric targets for Equitable Housing Finance, which was the reason to do it that way in the first place.
I can say that on behalf of the full Underserved Mortgage Market Coalition is that we applaud FHFA for taking this first important step that needed to be taken to create structure and begin to think about accountability for equitable housing finance performance. Everything else that I say is me in my capacity at The Lincoln Institute and based on my experience having worked at FHFA.
Are you personally satisfied with the proposed rule in its current state?
The way I look at it, there are a lot of things about this rule that need to be changed. And that’s the whole purpose of the rulemaking process. So, we intend to engage the UMMC actively in the public comment process, in hopes that the rule will result in a higher level of transparency and accountability.
The rule is based on the strategic planning model, but it doesn’t have all of the features of the Duty to Serve rule which has – and, most importantly, one of the questions in this rule is should the FHFA issue an evaluation of the enterprises? And should the rule include required evaluation metrics for the progress reports?
To me, that’s almost a rhetorical question. How can you have a strategic planning model if you don’t have some way of evaluating how effective it is? I’m hard pressed to think of other examples in bank regulation, whether its mission or safety and soundness, where there’s ever a rule with no standard announced for what would constitute compliance or not. I feel that was an important part that will be a very central part of the public comment, and I’m hopeful that a lot of our colleagues in the UMMC will join us in in that and seeing that as a major shortcoming.
The UMCC consists of 20 prominent organizations, so it would seem there are a lot of people supporting the concept of EHFPs. Are there people are opposed to these plans?
Mark Calabria [the former FHFA director] did not even think that FHFA should be doing Duty to Serve. There’s a large contingent of the right wing who thinks that Fannie and Freddie should not be in the mission business – that they should be private companies that shouldn’t have government guarantee.
How long is proposed rulemaking going to be into effect? And when can we expect a final decision from FHFA?
It’s a 60-day comment period. My guess, based on my experience, is that this should be finalized, if not in effect, by the end of the calendar year. I don’t think there’s any question that this will be promulgated as a final rule. And if it happens before the end of the year, it won’t be subject to the Congressional Review Act. So, it will be the rule until a new director changes it.
And what happens then? Does it have to be renewed or reviewed on a particular cycle?
The regulation does. But, of course, the regime that the regulation sets up, like Duty to Serve, calls for plans that that are three-year plans.
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Repackaging the same idea and calling it “enquiry”. 2008 it was called “everyone has a right to own a home”. Destroyed housing for ALL but many realtors and mortgage providers made a lot of money and then pushed those bad loans onto the public.
You are so right, this is what led to the collapse of the market from 2008 to 2012. People buying homes with no down payment OR even worse, some lenders allowed the SELLERS to pay the BUYERS down payment and closing costs back in the 2005-2007 era. It was insanity and a guarantee for a real estate collapse. None of it made sense. As soon as economy changed and many lost jobs, many owners walked away and let the lender foreclose. They had nothing to lose since they had no money of their own invested. We all know the consequences of those bad decisions. Not everyone should be a homeowner. Not everyone can afford to replace that roof when it goes bad, the HVAC systems when they go out, appliances or hot water heaters when they no longer work. The tree that might fall on your house, needs to come down, but they may not have the $2500 to pay to have it removed. It goes on and on, homeownership is a constant expense and the mortgage is only part of it. I think first time home buyers should be required to attend a homeownership workshop to understand what to expect when they buyer and understand the necessity of saving money for those rainy days that always come when you own a home.