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06/14/2022

FHFA, GSEs Release Equitable Housing Finance Plans

The Federal Housing Finance Agency on June 8 offered details of the government-sponsored enterprises’ (GSEs) Equitable Housing Finance Plans for 2022-2024.

“The Equitable Housing Finance Plans represent a commitment to sustainable approaches that will meaningfully address the racial and ethnic disparities in homeownership and wealth that have persisted for generations,” said FHFA Acting Director Sandra Thompson. “We look forward to working with the Enterprises, lenders and other housing industry participants to further develop the ideas described in these plans.”

In September 2021, FHFA instructed Fannie Mae and Freddie Mac to develop Equitable Housing Finance Plans that identify and address barriers to sustainable housing opportunities, and include the Enterprises’ goals and action plans to advance equity in housing finance for the next three years. In June, FHFA released the GSEs’ Equitable Housing Finance Plans for 2022-2024.

The 2022-2024 plan activities, which will be updated annually, address barriers experienced by renters, aspiring homeowners, and current homeowners—particularly in Black and Latino communities. These activities include but are not limited to:

  • Consumer education initiatives for renters and homeowners;
  • Credit reporting to help tenants build credit profiles and enable better access to financial services;
  • Expanding counseling services to support housing stability;
  • Deploying technology to improve access to sustainable credit and fair home appraisals; and
  • Special Purpose Credit Programs to address barriers to sustainable homeownership.

“ALTA and its members support expanding affordable and sustainable homeownership opportunities for more Americans across the country,” said Diane Tomb, ALTA’s chief executive officer. “The title and settlement services industry remains committed to strengthening communities, while protecting property rights for all consumers. We look forward to continued engagement with the FHFA, as well as Fannie Mae and Freddie Mac, in a collaborative, transparent and informed process to help provide equitable access to housing opportunities in underserved communities. We appreciate the GSEs’ intent to work with the industry closely throughout the continued development and implementation of its respective plans.”

Fannie Mae

In Fannie Mae’s plan, the GSE reported one of its action items is to execute a special-purpose credit program (SPCP) to support the reduction of borrower closing costs for Black homebuyers via appraisal products, appraisal reimbursements and/or title products. Congress added a provision to the Equal Credit Opportunity Act (ECOA) that allows lenders to create SPCPs that permit loan products tailored to protected groups that might not otherwise meet the lender’s typical standards for eligibility.

  • Description: Construct an offering in connection with one or more of our SPCP pilots to test the use of appraisal reimbursements, appraisal products or title products in certain target geographic markets to reduce borrower closing costs for Black homebuyers.

In another action item, Fannie Mae said it plans to document borrower closing costs and identify opportunities to alleviate the disproportionate closing cost burden on borrowers of color. In its plan, Fannie Mae cited its closing costs study that found black homeowners are more likely to pay higher closing costs and experience biases in the appraisal process that could lead to under-valuation.

Three initiatives are planned for 2022. Actions beyond 2022 will depend on the impact these initiatives have but could include changes to some or all of these initiatives, development of additional initiatives to reduce closing costs, or the decision to not make further investments in reducing closing costs.

Targets and Outcomes:

  1. Closing Cost Research: Initial closing cost research, which includes analysis of closing costs paid by different racial and ethnic groups, was published in December 2021. Additional research on how closing costs impact people of color and low-income populations will be published in 2022. Fannie Mae believes publishing this research will build awareness of disparities in closing costs across racial and ethnic lines, and that stakeholders will be more compelled to act to remedy these disparities once they are measured and documented. Fannie Mae will evaluate stakeholder interest and success by measuring engagement with the research, as measured quantitatively by views/downloads of the research and qualitatively by industry interest in and discussion of the findings.
  2. Attorney Opinion Letter: Update the Selling Guide to encourage lenders to allow borrowers the option to utilize an attorney opinion letter in lieu of traditional title insurance more often, which may be cheaper than traditional title options. Fannie Mae believes more common use of attorney opinions could lead to savings for some borrowers. Fannie Mae said it is looking into how it will be able to utilize internal and/or external data to track usage of this option.
  3. Title Insurance Cost Reduction: Pilot options to reduce title insurance costs to borrowers. Potential options could include coordination of bulk purchase of title insurance, with savings passed to consumers, or a subsidy for qualifying buyers. While the specifics will vary depending on the pilot, Fannie Mae will evaluate success based on the number of borrowers who leverage the pilot benefits and the estimated average savings for each of these borrowers.

Freddie Mac

In its plan, Freddie Mac said title insurance is a significant part of the borrower’s cash-to-close. “The policy premium is usually the largest closing cost, and these costs are disproportionately felt by Black and Latino borrowers,” according to the GSE. Additionally, Freddie Mac said it requires title “policies to be delivered with every mortgage,” however, the GSE said policies are “expensive” and “most consumers do not shop for lower rates.” Freddie Mac also said refinances present less risk “as major title problems should have been cured at purchase and the incremental risk of title defects arising between purchase and refinance is small.”

Freddie Mac said it is working with the industry to determine how it might lower the cost of title insurance, especially for low-balance loans.

Freddie_goals

Pilot Programs

Additionally, FHFA has created a pilot transparency framework for the GSEs to accompany these plans. This framework requires each Enterprise to publish and maintain a list of pilots and test-and-learn activities on its public website. The framework will provide accountability in determining whether such activities are working to address the disparities identified in the Equitable Housing Finance Plans.

What’s ALTA Doing?

ALTA staff and several Board members have met with both GSEs and the FHFA. ALTA shared the industry’s perspective on the plans and asked several questions about their closing cost analysis. ALTA also highlighted the various risks, particularly to lenders, associated with attorney opinion letters in lieu of title insurance, even in limited circumstances.

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