The FHFA suspends the second home and the limits of investment loans
The Federal Housing Finance Agency (FHFA) and the US Department of the Treasury announced Tuesday evening that they were suspend some of the provisions that had been added to the preferred share purchase agreements (FESP) last January. The PSPA is the legal agreement between the Treasury and Fannie Mae and Freddie Mac governing the conditions of the credit line granted to GSEs in 2008 when they were placed under supervision.
FHFA Acting Director Sandra L. Thompson said: “This suspension will give the FHFA time to consider to what extent these requirements are redundant or inconsistent with existing FHFA standards, policies and guidelines that require sustainable lending standards. ”
The January 14 changes would bring the amount of capital that companies are allowed to keep into compliance with the 2020 Enterprise Capital Rule unveiled by the FHFA in November. They allowed GSEs to retain profits to maintain Level 1 capital above 4.0% of their collateral obligations in order to avoid restrictions on capital distributions and discretionary premiums. Previously, quarterly GSE profits went to the Treasury instead of a dividend.
Most impactful (and controversial) changes have limited the ability of GSEs to acquire certain mortgages. This included limiting the volume of mortgage loans secured by second homes or investment properties to 7%. The limit is measured by the outstanding principal balance of the GSEs over a 52-week moving average. There was also a 6 percent limit on the acquisition of risk stratified loans with a 3 percent limit on those for refinancing.
The PSPA changes also placed a $ 1.5 billion limit on cash purchases of mortgages from a single seller and its affiliates over a four-quarter period. This limitation was to begin on January 1, 2022.
In Tuesday’s announcement, the FHFA said it would consult with the Treasury on the scope of its review and on any recommended revisions to the PSPA requirements. These now suspended provisions include limits on GSE cash desks (loans acquired against cash payment), multi-family loans, loans with higher risk characteristics, as well as second homes and investment properties. The agency will also review the regulatory capital framework for businesses and plans to announce further measures soon.
Robert D. Broeksmit, President and CEO of the Mortgage Bankers Association (MBA) issued the following statement on the FHFA / Treasury announcement.
“MBA applauds the Treasury and FHFA’s announcement that they are suspending limits on purchases of certain types of loans, lenders’ use of the cash window, and multi-family volumes, which have been imposed on GSEs by the PSPA amendments on January 14, 2021.
“The suspensions will remove several market and price disruptions caused by these caps that were hurting lenders and borrowers and pave the way for the re-establishment of proper regulatory authority at the FHFA.