Mortgage companies selling loans to two
In a flurry of new guidance announced Wednesday, both Fannie Mae and Freddie Mac added rules lenders will need to follow when consumers want them to take a second look at their valuations. In addition, Freddie expanded its allowable lender title-insurance alternatives.
Such changes at these entities - which accounted for over half the mortgage-related securities issued domestically during the first quarter - are in line with related Biden administration efforts to reform the appraisal process and lower housing costs for borrowers.
"Consistent standards for lenders and appraisers, coupled with a well-understood process for consumers to challenge appraisal findings, will help ensure that consumers are treated fairly," FHFA Director Sandra Thompson said in a press release.
"These updates represent a powerful tool in combating
The Federal Housing Administration, which insures loans in Ginnie Mae securitizations, also announced on Wednesday that it has moved forward with a version of
Under the GSE valuation review rules, lenders will have to have a process with documentation and disclosures for when a borrower is concerned an appraisal is "unsupported," deficient due to appraisal requirements that are "unacceptable" or based on "discriminatory practices."
Both Fannie and Freddie said the documentation could be used to track these reviews in the future. Rules for these reconsiderations of value will go into effect for applications dated on or after Aug. 29.
Freddie's expanded title insurance options, in contrast, are effective immediately and extend their use both in terms of new jurisdictions and loan types. Refinances and purchase loans are eligible.
The enterprise previously allowed lender title-insurance alternatives only in areas where they were "commonly acceptable," like Ohio and Kentucky, but it's removing that restrictive language and extending the option to 49 states and Washington, D.C. (Iowa has unique requirements.)
In addition, Freddie is extending the use of attorney opinion of title letters to loans collateralized by condominiums and those with deed restrictions, such as properties that are part of a homeowners association.
While broader use of options like attorney opinion letters has gotten
However, American Land Title Association CEO Diane Tomb said the letters are likely to rarely, if ever, result in savings and "will expose additional consumers and lenders to unneeded risk and weaken protection of their property rights.
"Unregulated attorney opinion letters provide no coverage for some of the most frequent reasons for claims, such as fraud and forgery, and they are simply the more costly option in the majority of states. Freddie Mac's decision to follow Fannie Mae's lead in embracing this unregulated, less comprehensive, and short-sighted product is a mistake," she said.
One-third of title claims are for issues not found in routine searches conducted for an AOL, the cost of insurance has fallen almost 8% since 2004 "seller-pay" regimes in many states minimize buyer costs for insurance. Condos are considered particularly vulnerable to risks, according to ALTA.
Also raised as issues by proponents of title insurance has been the extent to which the coverage represents a small component of overall mortgage or even closing costs.
It's less than 1% of life-of-loan expenses by First American's reckoning, and a 2022 Fannie Mae white paper found "economically meaningful differences in costs across borrower groups are not evident in title and settlement charges."
Use of AOLs as an alternative to title insurance at Freddie will be an option, not a requirement, for lenders. Freddie has been accepting them on a limited basis for many years.
The Community Home Lenders of America, which has been supportive of efforts to expand AOL use, said it welcomed Freddie's move to increase the use of the letters in conjunction with condo financing in particular.
"CHLA applauds Freddie Mac for allowing the use of AOLs as an alternative to title insurance as well as aligning their practices more closely with Fannie Mae," Scott Olson, executive director of the group, said in a statement released Wednesday.
The GSE title requirements pertain to lender protection against lien conflicts, not the coverage consumers voluntarily get, but the latter could benefit because lenders are expected to pass the savings on to borrowers in a market where affordability is a key hurdle to getting financing.
"Such alternatives hold great promise in reducing mortgage closing costs and increasing affordability opportunities for low- to moderate-income, and first-time homebuyers," Olson said.
Freddie requires AOLs to provide substantially similar coverage as title insurance policies to lenders and it noted that stronger counterparty and professional liability protection mandates for providers of the letters have been added in its expansion of their use.
A reduction in closing costs has been a priority in GSE plans aimed at reducing racial inequities in housing for the last few years. The most recent version of these goals were announced Monday.
In another selling guide announcement related to such initiatives, Fannie and Freddie said they'd be working collaboratively on programs around a newly defined first-generation homebuyer loan.
Borrowers using the subject property as their primary residence will be eligible, provided they haven't had a partial or full ownership interest in another piece of real estate in the last three years preceding the note date, and meet one of three other requirements.
One such qualification is that the borrower has a parent with no ownership interest in another property for the three years preceding the note date. Alternatively, the borrower may have become emancipated from their parents or aged out of foster care.
Other changes at Fannie include making loans backed by cooperative properties eligible for an electronic registry that's broadly used in the industry. Fannie's is also expanding its shared equity policy related to manufactured homes in community land trust properties.
Freddie also is updating a requirement related to the inclusion of
New Freddie rules for large deposit sources start with settlement dates as of Sept. 30, limiting them to money from borrower incomes, funds from a source with no interest in the transaction and certain assets. Disaster relief, lottery win or court settlement funds may be eligible.
