Ten years after the housing market meltdown, the legislative and regulatory landscape for housing finance continues to evolve. Fannie Mae and Freddie Mac remain in conservatorship, the term of FHFA director Mel Watt expires in January 2019, and S.2155, the Economic Growth, Regulatory Relief and Consumer Protection Act has been signed into law. Regulators are considering changes to Community Reinvestment Act requirements, the Consumer Financial Protection Bureau is poised to revisit the Qualified Mortgage rule, FHFA has directed the GSEs to consider use of new credit scores, and the scope of HMDA data collection is again being debated.

What does all this mean for the residential housing market? 

Let’s start with the GSEs. It has been almost 10 years since FHFA put Fannie Mae and Freddie Mac into conservatorship with a goal of preserving their assets and properties and restoring them to a safe and solvent condition. FHFA acts as the GSEs’ regulator and conservator. Over time, FHFA’s objectives as conservator have evolved into three fundamental principles:

1. Maintain credit availability to foster a “liquid, efficient, competitive and resilient” housing finance market;
2. Reduce taxpayer risk by increasing the role of private capital in the mortgage market; and
3. Build a new single family securitization infrastructure.

Given the GSEs’ central role in the housing finance market, we can measure the impact of the GSEs by examining the state of today’s housing finance markets. While as an industry more can be done to improve access to credit for borrowers from underserved communities, access to credit has expanded considerably since the early days of GSE conservatorship.

Both Fannie Mae and Freddie Mac now offer mortgages with loan-to-value ratios up to 97%, average FICO scores for GSE borrowers have dropped modestly, and both Fannie Mae and Freddie Mac are devoting resources to fulfill their “duty to serve” mission.   

Because the housing market has shown improvement, and appears to be stable and functioning, reaching a legislative resolution to the status of the GSEs has been de-prioritized. While both the House and Senate have considered legislative reform, there is no expectation that Congress will pass housing reform this year.

Recently, housing policy leaders have begun a conversation about possible “administrative reform” for the GSEs. But this is a concept that is still being refined.

Some consider it to mean putting the GSEs into receivership with a view of reconstituting the GSEs and returning them to the market in their pre-conservatorship form, while others use the term to mean a set of modest reforms overseen by FHFA as conservator. 

With FHFA director Mel Watt’s term due to expire in January 2019, the question of whether to move ahead on some version of administrative reform may rest with his successor. In the meantime, policy makers would be well-served to work together to come to some agreement on options for administrative reform.

At a minimum, agreeing on a common definition would be a good first step. This is especially important because, unless and until Congress takes up legislative reform for the GSEs, the primary and secondary markets will continue to be defined by an evolving set of principles rather than targeted legislation. FHFA and the GSEs will be central players in this evolving framework. 

Separately, Congress has managed to undertake significant regulatory reform via S.2155. Most notable for mortgage markets is the modest provision that extends QM status to loans held in portfolio by banks with less than $10B in assets.

The principles underlying this change are:

(1) the recognition that community-based lenders can assess a borrower’s ability to repay their mortgage without relying on hard-coded underwriting criteria, and

(2) holding a loan in portfolio is “skin in the game” that will incent prudent underwriting.

Policymakers’ reactions to this change are mixed. Many consumer advocates worry that the bill undermines the spirit of the QM rule to protect borrowers from unscrupulous products and practices, while other policy makers applaud the easing of regulation that will expand access to credit.    

With midterm Congressional elections pending and regulators continuing to work their way through an ever-growing to-do list that includes CRA lending, credit scoring and HMDA, the bottom line is that housing policy is likely to continue to be made only in increments, without clear guidance from Congress or the administration.

For those on the front lines of housing finance, this means ongoing challenges helping borrowers — especially first-time homebuyers and moderate-income borrowers — identify the mortgage that is best suited to their needs and resources.

Now more than ever, it is important to make sure that borrowers know that buying a home does not mean waiting years to amass a 20% down payment.

Fannie Mae and Freddie Mac have programs that are designed to help make sustainable homeownership a reality for all home-ready borrowers.

Private MIs play a central role in making sustainable homeownership attainable. Because MIs have their own independent credit guidelines, they also ensure that borrowers can become — and remain —homeowners.

More can be done to help affordability — especially coordination among Congress, the administration, bank regulators, FHFA and HUD/FHA to ensure that there is an overall policy framework to promote a sound and stable mortgage market.

In the meantime, responsibility for helping borrowers find and finance the right home rests with the housing finance industry.  Products that are time-tested, and fairly and transparently underwritten and priced, are the key to filling the policy void.