The Independent Community Bankers of America (ICBA) and its Minority Bank Advisory Council sent a letter to Treasury Secretary Janet Yellen and Federal Housing Finance Agency (FHFA) Director Mark Calabria voicing concerns about recent amendments to the Preferred Stock Purchase Agreements (PSPAs) for Fannie Mae and Freddie Mac (the Enterprises).
The amendments the ICBA is most concerned about are those that limit Enterprise purchases of single-family loans with at least two “high-risk” characteristics, such as loan-to-value rations above 90 percent, debt-to-income ratios above 45 percent, and credit scores below 680, and limit the percentage of investor properties and second homes to 7 percent of total purchases.
“Amendments to the Fannie Mae and Freddie Mac Preferred Stock Purchase Agreements will disproportionately harm low- and moderate-income and minority borrowers, undermine the economic recovery, widen the minority homeownership gap, and disrupt the housing market,” James Sills, president and CEO of M&F Bank in Durham, N.C., and chairman of ICBA’s coalition of minority-owned depository institutions (MDIs), said in a release. “ICBA and the Minority Bank Advisory Council urge the Treasury Department and Federal Housing Finance Agency to delay implementation of these purchase agreements and reopen negotiations.”
One example of the impact on smaller lenders, particularly MDIs, highlighted the difference in the amount of loans submitted by these lenders versus those submitted by large aggregators. Most MDIs deliver fewer than 50 loans annually to Enterprises, meaning they would only be able to deliver three investment property loans per year before exceeding the new specified limit. Larger aggregators, who submit thousands of loans, would be less affected, as the percentage cap would still allow them to submit hundreds of investment property loans.
The ICBA and its minority bank advisory council said while it recognized the FHFA’s and the Enterprises’ needs to carefully calibrate the levels of risk they are willing to accept based on certain loan exceptions, the recent PSPA amendments “represent an unacceptable deviation from the standard process by which Enterprise product and program changes are implemented.”
“The amendments were rendered without any explanation, justification, or opportunity for lenders to clear their loan pipelines,” the letter stated. “Recent lender letters from the Enterprises fail to offer clear guidance to all lenders, particularly to MDIs that are concerned about how the restrictions will impact their ability to carry out their mission. More specifically, current guidance fails to clarify what happens if a lender’s deliveries exceed the product restrictions defined in the PSPAs.”
In addition to requesting a delay in implementation and a reopening of negotiations, the letter also requested the Enterprises provide additional clarification on the tracking and enforcement of limitations imposed by the PSPAs.