Earlier this year, the FHFA and the Treasury changed Treasury Department Preferred Stock Repurchase Agreements (PSPAs) to limit Fannie Mae and Freddie Mac (collectively the GSEs). These limits resulted in widespread fee increases for several mortgage categories, with investment properties and second homes suffering the most damage. Here is a short list of our coverage to date:
Much of the urgency behind the initial changes was a result of the change in administrative guard. Former FHFA director Calabria wanted to leave a legacy as “the man who finally reduced the government’s indirect footprint on the mortgage market”. But at the beginning of January the clock ticked on his office door, which was reassigned to a possible Biden representative.
Calabria urged the government to use a consent order to “pin down” (or at least more difficult to reverse) its libertarian intentions. After then-Finance Minister Mnuchin met resistance, the boldest option was to change the PSPAs to limit the portfolio composition of the GSEs. The most pressing implication was the need to slow portfolio growth in loans for non-owner and second homes.
Fannie and Freddie understandably dragged this instruction out. After all, it was 2021 and maybe a new FHFA director would have a virtual cup of coffee with the new Treasury Secretary Yellen and decide to reverse the PSPA change. A few elbow bumps and signatures later and things would go as usual for the GSEs! Unfortunately, the new government’s hands were tied as it awaited a Supreme Court ruling confirming that Calabria COULD even be fired!
The weeks passed in which GSE portfolios received more investment and home loans than they were allowed to keep at the end of the year. They were forced to act, and they didn’t pay attention to how they acted (some would say deliberately trying to get trading groups to take political action … want to do. They are profitable). Trading groups were gathering, and the Biden administrator acted quickly as soon as the window opened.
With all of that out of the way, we are armed to understand what just happened this afternoon. In a word (actually several words), the big changes to the PSPAs that sparked the 2021 loan pricing drama have been put on hold for at least a year while the FHFA and Treasury Department decide if any changes are needed at all. In the meantime, GSEs have been given the option of lowering the barriers to home and second home loans (ie, lowering the “hits” applicable to the pricing of these loans).
It’s not quite as simple as Fannie and Freddie change their fees, however. In fact, most of the drama in loan pricing was because the GSEs advised certain lenders to reduce these loans. Lenders achieved this by increasing the interest rates on these loans (i.e., deterring the business by making it unaffordable).
Bottom line: GSEs would need to notify lenders of the change, and lenders would then decide how to proceed. Some will make budget-friendly changes right away, while others will wait or take a step-by-step approach. In short, the headline should really be that the big bad mortgage rate hikes in 2021 can be reversed NOW. The timing and details are up to the lenders and GSEs.
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|Prices from 14.09.21 7:04 p.m.|