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
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?”