FHFA Suspends “High Risk” Provision on Fannie, Freddie

The Federal Housing Finance Agency (FHFA) and the U.S. Department of the Treasury have suspended proposed rule changes for Preferred Stock Purchase Agreements (PSPAs), FHFA announced in a press release.

The goal of these changes, put in place at the end of the Trump administration, was to limit Freddie Mac and Fannie Mae’s ability to back certain types of mortgages, including on second homes, multifamily homes and homes bought with higher risk loans.

“This suspension will provide FHFA time to review the extent to which these requirements are redundant or inconsistent with existing FHFA standards, policies, and directives that mandate sustainable lending standards,” Acting Director Sandra L. Thompson said.

FHFA will consult with Treasury on the scope of the review and any recommended revisions to the PSPA requirements. The suspended provisions include limits on cash windows, multifamily lending, loans with higher risk characteristics, and second homes and investment properties. 

The “high risk” provision put a cap on the number of risky loans Freddie and Fannie can buy. They are defined based on loan-to-value ratios, debt-to-income ratios, and borrower’s credit scores. This provision was criticized by lenders and housing advocates, who argued it disproportionately hurt people of color searching for loans.

FHFA’s press release said the agency is “reviewing the Enterprise Regulatory Capital Framework and expects to announce further action in the near future.”

Response from the industry has been positive. The Community Home Lenders Association released a statement saying, “CHLA commends in the strongest possible way FHFA Director Sandra Thompson for suspending the January PSPA restrictions on higher risk loans, investors and second homes, and small lender cash window access. This action is critical to enable Fannie Mae and Freddie Mac to fully carry out their mortgage access to credit role.”

The American Bankers Association also voiced their support in a statement: “We appreciate today’s decision from the Treasury Department and the Federal Housing Finance Agency to suspend and review the changes to the preferred stock purchase agreements for Fannie Mae and Freddie Mac announced in January. This step, taken in response to concerns raised by ABA and other stakeholders, will bolster market stability and allow time for FHFA to consider additional revisions to the conservatorships of the two government-sponsored enterprises that can expand affordable housing financing in the country. We look forward to sharing our ideas.”