Hi all. I delayed writing on this topic because often when an announcement of this kind comes from any oversite or regulatory agencies, changes are made, updated, or postponed that require us to go back and retract or restate the facts. In this case, because it’s become headline news, we are getting lots and lots of inquiry, so below is what we know (maybe a little of what I think), but note that it is, of course, subject to change- and, in fact, with all the attention it’s gotten this last week. This week some predict we will see an update to the ruling in the coming days or weeks. Not going to cast a vote on that, just saying like anything in mtg-related financing, most things are moving targets and very fluid.
I’m going to oversimplify in several spots. Otherwise, this quickly turns into a political debate/post (which is 100% what has happened here). But I’m here to educate and inform, not discuss politics.
First, it is essential to start by sharing that even though this news hit your inboxes over the last week, this is old news in our industry. In February, the FHFA (federal housing finance agency- aka Oversight of Fannie and Freddie) announced the most recent LLPA updates. Who remembers when they imposed higher LPA’s for NOO (non-owner occupied) or cash-out refi over the last few years?
LLPA’s are not static; they are subject to change. In this case, it’s more than a lower credit score higher leveraged borrower is getting an improvement to the LLPA to assist with affordability, NOT that higher credit scores mean higher down payment borrowers are being charged more. There are lots of in-betweens here. So, what’s important to you and how that translates to today is that secondary markets where MBS (mtg-backed securities) have already accounted for those changes announced in February. So, any rate quote or rate lock you’ve received over the last 2-3 months already indicates those changes- they are already in there. That may or may not make some of you feel any better, but rates/pricing today have already been adjusted based on the Feb announcement.
I suspect, for most; this is all you wanted/needed to know.
For anyone else, here are some facts mixed with opinions. The bottom line is that Fannie/Freddie (compared to FHA – which reminder does not lend to investors, only primary residence homeowners) has not provided affordable loan products that cater to underserved communities the same way FHA has. As an example, and don’t quote me because I’ve not verified this myself yet, but I read today that just 8% of the GSE (government-sponsored enterprise, aka Fannie/Freddie) loans purchased last year were for African American vs. 50% of that of FHA were for minorities. So, the FHFA, under the rule of Sandra Thompson, is taking action to make some corrections to this- which, by the way, I’m all for but not in the way it’s being done and not at the expense of higher credit/higher down payment borrowers. Some would argue that isn’t what’s been done- I guess it depends on how you look at it.
The worst part about this is that housing has yet to escape politicization like everything else in this country. Supreme Court ruled in June 2021 that the structure of these federally or quasi-federally regulated oversight companies like the FHFA and the CFPB was unconstitutional, allowing for the organization heads or Directors to be dismissed by the acting POTUS. So whatever side of the political fence you’re on, as it now stands, housing/lending rules/regs will be dictated mainly by Red/Blue. This also means every four years or so, if the white house changes color, we can expect widely different policies and regulations we’ll need to get used to.
Here is my final thought (borrowed from Larry Bailey) on this as it applies to us as investors; Whatever money costs today is what it costs today, what it costs tomorrow is what it costs tomorrow, and what it cost yesterday is no longer relevant. So, the only question is, how much money do you want to borrow?
*for any interested, below is a statement released this week from acting director Sandra Thompson of the FHFA about the changes imposed in Feb of this year. I see some contradictions listed, and I’m afraid I disagree with these recent LLPA updates, but I’d say, from my limited vantage point, I have approved of her work at the FHFA overall.
Caeli Ridge – President – Ridge Lending Group
NMLS #9556
855-74-RIDGE
