Category: Legislation

Low-Income Housing Goals Set for Fannie Mae and Freddie Mac

Low-Income Housing Goals Set for Fannie Mae and Freddie Mac

The federal agency that regulates the mortgage finance companies Fannie Mae and Freddie Mac on Wednesday set goals for the next two years to nudge them to provide mortgages to more low-income borrowers and to landlords who offer low rents to poor people.

The Federal Housing Finance Agency is required by a 2008 law that took effect after the collapse of the housing market to set annual targets for mortgages bought by Fannie and Freddie, the government-run institutions that back most home loans.

The goals act as directives for Fannie and Freddie to focus more of their business on affordable housing. The companies buy loans from private lenders, package them into mortgage-backed securities and provide a credit guarantee to investors to ensure timely payment.
Some advocates of housing for the poor expressed disappointment that the goals were not more ambitious. But the agency hailed the rules as an important lever for helping more poor families buy homes and for improving access to mortgages for landlords who rent out affordable apartments to low-income tenants in poverty-stricken neighborhoods.

“These goals establish a solid foundation for affordable and sustainable homeownership and rental opportunities in this

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country,” Melvin L. Watt, the agency’s director, said in a news release.

The housing market is improving, but still lags the boom years before the market collapsed. Many potential buyers still complain that they have trouble getting mortgages, that few homes are on the market and that rents are soaring.
The agency set separate targets for single-family housing including categories for mortgages for low-income families, very low-income families and families in low-income areas, and for refinancing mortgages. The goals for mortgages for owners of multifamily property also include separate targets for low- and very low-income families.

The agency said 24 percent of mortgages should be bought by Freddie or Fannie for homes for low-income borrowers, or those with incomes no greater than 80 percent of an area’s median income. That goal is one percentage point higher than the goal for 2014.

The National Community Reinvestment Coalition, which advocates affordable housing, said that the new target fell short of expectations.

“With demand up and the economy stronger, to say 24 percent is to create a standard that isn’t as helpful as what is needed,” said John Taylor, president of the organization, who called the new goals “a lost opportunity.”

The agency also set a goal of 6 percent of mortgages for borrowers considered very low income, who have incomes no greater than 50 percent of the median income of the area. That is slightly less ambitious than last year’s goal of 7 percent.

For multifamily units, the agency wants the lenders to back mortgages for 300,000 units a year through 2017 for low-income units and 60,000 a year for very low-income units.

For mortgages for small apartment complexes, the goals are 48,000 total low-income units for the next two years, less than half of the 105,000 total units originally proposed. The higher goals would have risked “crowding out” smaller lenders, the agency said, acknowledging that the final goals are modest but are intended to keep Fannie and Freddie active in this market.

The agency said that Fannie and Freddie had not fallen short of similar housing goals in the past, but that it could take action to ensure the goals are met if problems arise.

During the housing crisis, the federal government placed Fannie and Freddie in conservatorship, and they received a taxpayer bailout to avoid bankruptcies. They now pay their profits to the Treasury.

The agency said it had received 144 comment letters from advocacy groups and others on its proposed goals. A “significant number” of those letters questioned whether Fannie and Freddie should still be under conservatorship or were tied to unrelated matters.

“Those comments are beyond the scope of this rule-making,” the agency said.

A version of this article appears in print on August 20, 2015, on page B7 of the New York edition with the headline: Agency Sets Goals for Fannie Mae and Freddie Mac to Encourage Affordable Housing .

What is Causing the Decline in Short Sales?

This article is worth sharing.  The author Colin Robins, posted this on March 26, 2014 on  Good information:

Consequences stemming from the expiration of the Mortgage Forgiveness Debt Relief Act may be surfacing, according to a perspective piece written by CoreLogic’s Kathryn Dobbyn. The piece found that throughout 2012 and into 2013, short sales had been steadily declining, partly due to rising home prices.

Dobbyn is careful to note that, “While two data points do not make a trend, this negative trajectory appears to have picked up pace in 2014 with short sales dropping 0.6 percentage points from 5.2 percent of total sales in December 2013 to 4.6 percent in January 2014.”

Preliminary February data would suggest that short sales will continue to decline, quite precipitously to 2.2 percent.  However, REO-sales have not declined in a similar fashion, moving instead with normal seasonal patterns, according to the CoreLogic analyst.

Dobbyn attributes the decline, not to home price appreciation or other factors, but to nascent effects of the expiration of the Mortgage Forgiveness Debt Relief Act.

“This act, which has been subsequently renewed and extended twice, allowed borrowers to exempt the amount of forgiven mortgage debt from their income, making the short sale a more attractive option for borrowers trying to avoid foreclosure,” Dobbyn said.

Dobbyn writes that the expiration of the act, which would create hefty taxable income for a borrower if they proceeded with a short sale, likely made borrowers considering such a move think twice.

Expiration of the act had other consequences as well. “With the forgiven debt now taxable income, a loan modification with a principal reduction presents a more complicated decision for both the borrower and the servicer,” the piece said. The increased taxable income could place more stress on an already distressed homeowner, leading servicers to look for other avenues to help trouble borrowers—actions such as a rate reduction or principal forbearance.

While Congress could still decide to extend the act further, with legislation pending in both the House and the Senate, the uncertainty of the extension is putting negative pressure on the volume of short sales and principal reductions.

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Legislation Affecting Real Estate

From National Association of Realtors November, 2013 Newsletter:

Senate 3% Cap Bill Introduced
On October 28, 2013, Senators Joe Manchin (D-WV), Mike Johanns (R-NE), Carl Levin (D-MI), Pat Toomey (R-PA), Debbie Stabenow (D-MI) and Mark Kirk (R-IL) introduced S. 1577: The Mortgage Choice Act. The legislation is identical to H.R. 3211 in the House. It would make adjustments to the Truth in Lending Act’s (TILA) definition of fees and points to ensure greater consumer choice in mortgage and settlement services under the Ability to Repay/Qualified Mortgage (QM) rule. S. 1577 endeavors to restore a competitive market among lenders by clarifying and rationalizing the definition of fees and points to reduce this discrimination. By doing so, S. 1577 will ensure that consumers have greater access to mortgage credit and also more choices in credit providers. Without S. 1577, both choice and access will be severely reduced, affecting countless consumers and those who serve them. NAR is asking both the Senate and House to ensure the legislation is enacted before the QM rule takes effect in Jan. 2014.

Flood Insurance Affordability Bill Introduced
On October 29, 2013, Senators Robert Menendez (D-NJ) and Johnny Isakson (R-GA) introduced the NAR-supported “Homeowner Flood Insurance Affordability Act” (S. 1610), to delay unintended rate increases under the Biggert-Waters law and its implementation. Representatives Michael Grimm (R-NY) and Maxine Waters (D-CA) have introduced an identical bill in the House (H.R. 3370). The bipartisan measure essentially calls for a 4-year “time out” on further implementation of the rate structure until FEMA completes the affordability study required by Biggert-Waters and also proposes a regulatory solution to issues found in the study. The bill’s delay would apply to any property that is grandfathered or purchased after July 2012, including second homes and commercial properties. The other property owners will still see any rate increases capped at 20-25% a year. The bill would also create a Flood Insurance Advocate within FEMA to investigate and assist property owners with verifying the accuracy of flood insurance rate quotes. The bill was introduced with an impressive list of 15 Senate and 65 House original sponsors. NAR will continue pressing for additional co-sponsorship and urging its immediate consideration by Congress.