HFSC Chair Waters Proposes Alternatives to GSE, FHA Forbearance ’Fees’ firstname.lastname@example.org
House Financial Services Committee Chair Maxine Waters, D-CA, late this week rebuked the Federal Housing Administration and the Federal Housing Finance Agency for policies that she said would unfairly penalize firms that lend to minority borrowers.
In a letter addressed to Department of Housing and Urban Development Secretary Benjamin Carson and FHFA Director Mark Calabria, the California Democrat criticized agency plans for dealing with forbearance loans. Of particular concern: mortgages that were fully underwritten, but then went into COVID-19-related forbearance before they could be endorsed by the FHA or purchased by Fannie Mae or Freddie Mac.
Earlier this month, HUD announced a new policy allowing the government to back these loans, but only if lenders indemnify FHA for up to 20% of the original loan amount. The FHFA had previously imposed even more draconian costs for these types of forbearance loans. Lenders would have to pay a fee of up to 700 basis points for the privilege of selling them to Fannie or Freddie.
Waters argues that, because of these fees, many lenders have begun to require higher downpayments and credit scores – credit overlays that she says disproportionately impact borrowers of color.
In her letter, Rep. Waters acknowledges the need to manage the risk associated with forbearance loans, but recommends an alternative to the steep LLPAs leveled by FHA and FHFA. Instead, the congresswoman says those costs should be spread across the agencies’ broader single-family portfolios, resulting in “near-negligible costs on any individual loan.”