What Can Fan­nie Do For Lenders?

An­drew Bon Salle wants to ease the bur­den of loan-level price ad­just­ments and ex­pand rep and war­rant re­lief. But even he ad­mits there are lim­its to his power

National Mortgage News - - Contents - BY BON­NIE SIN­NOCK

An­drew Bon Salle, ex­ec­u­tive vice pres­i­dent of Fan­nie Mae’s sin­gle-fam­ily busi­ness, over­sees the poli­cies of the largest buyer of res­i­den­tial mort­gages in the U.S.; but there are lim­its to his power. Bon Salle is fo­cused on over­see­ing poli­cies de­signed to help mort­gage lenders sell loans to Fan­nie so it can ful­fill its af­ford­able hous­ing mis­sion. Bon Salle knows a lot about what lenders want; but he ad­mits there are prac­ti­cal lim­its to what he can, or will, do for them.

For ex­am­ple, he can’t do too much about loan-level price ad­just­ments. That’s in part be­cause LLPAs are con­trolled by the Fed­eral Hous­ing Fi­nance Agency that serves as the GSEs’ con­ser­va­tor and reg­u­la­tor.

“FHFA holds the pen on that,” he ac­knowl­edged in an in­ter­view in New York ear­lier this year.

That’s not to say there no hope that lenders will ever get more a lit­tle more re­lief from the credit ad­just­ments that are added on top of fees they al­ready pay for Fan­nie to guar­an­tee the credit risk on their loans.

Fan­nie has, for ex­am­ple, waived some LLPAs for HomeReady low down pay­ment loans; and it is pos­si­ble it could re­move more LLPAs on a lim­ited ba­sis from cer­tain other loans.

Even if Bon Salle could get rid of LLPAs, he doesn’t think it would make sense to get rid of them en­tirely.

“I’m a be­liever in risk-based pric­ing,” he said.

Even if Fan­nie did want to shift to make a change, it would be time-con­sum­ing, said Bon Salle.

“It would take the in­dus­try five to 10 years to adopt a change in how we ex­tend pric­ing,” he said.

There are some lim­ited ex­cep­tions, though, in the cross-sub­si­dies Fan­nie of­fers to sup­port af­ford­able hous­ing.

While Fan­nie’s not go­ing to com­pletely elim­i­nate the ex­tra fees it charges for loans with higher credit risk, it will elim­i­nate them in some cir­cum­stances, and there are many other ways the agency is will­ing to ad­just the poli­cies in its sell­ing guide to make lenders’ lives eas­ier.

“There are a whole bunch of things we’re look­ing at,” he said. Fan­nie has, for ex­am­ple, plans to build on its re­cent ef­forts to re­move home buy­ing hur­dles faced by bor­row­ers who have stu­dent debt, as well as those seek­ing to fi­nance con­do­mini­ums.

There are lim­its to how far Fan­nie can open up its un­der­writ­ing, but do­ing some­thing like ac­com­mo­dat­ing cash-out re­fi­nances for bor­row­ers with stu­dent loans makes sense be­cause it man­ages risk by de­creas­ing the con­sumer’s debt bur­den, Bon Salle said.

Mak­ing im­prove­ments to the un­der­writ­ing process can take time, he noted. Do­ing more to im­prove con­do­minium

lend­ing, for ex­am­ple, won’t be some­thing Fan­nie can do overnight.

“That’s a longer-term data-set kind of chal­lenge that we’re go­ing to have to work with the in­dus­try on,” said Bon Salle. “That’s not a quick fix. There’s not a lot of struc­tured data in that space.”

An­other change Fan­nie would con­sider is an ex­pan­sion of the re­lief from rep­re­sen­ta­tions and war­ranties it is now able to of­fer lenders on loan data el­e­ments that were tied to a lot of loan re­pur­chases in the past.

When asked if there could be more pieces types of data the GSE could ap­ply the re­lief to, Bon Salle said, “I’m sure there are, but I’m not sure we have all the an­swers yet.

“We have al­ready hit the big three,” he added. “When you look at the rea­sons why loans got re­pur­chased, those are in­come, as­sets and col­lat­eral value. We’ve cov­ered that.”

Find­ing a way to use data to val­i­date cer­tain con­di­tions lenders must rep and war­rant to in un­der­writ­ing con­dos, such as the owner-oc­cu­pancy rate, could be an ex­am­ple of this.

Fan­nie Mae also con­tin­ues to look at the pos­si­bil­ity of ex­pand­ing the fi­nanc­ing avail­able to bor­row­ers look­ing to buy man­u­fac­tured hous­ing as part of the FHFA’s Duty to Serve pro­gram, which di­rects the gov­ern­ment- spon­sored en­ter­prises to ful­fill a statu­tory re­quire­ment by fo­cus­ing on cer­tain un­der­served mar­kets.

“There are no sil­ver bul­lets there, but just like HomeReady and the stu­dent loan pro­gram that we have in the mar­ket­place now, it’s go­ing to be the same process.

“We’re look­ing at what are the chal­lenges for serv- ing those un­der­served mar­kets and what can we do in terms of prod­uct de­sign and pol­icy changes to try to help cre­ate more af­ford­able op­tions while at­tain­ing sus­tain­able home­own­er­ship and risk?”

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