Housing agencies exercise caution in expanding underwriting

The Federal Housing Administration is still seriously considering a premium cut, and Freddie Mac is aiming to support the growth of housing supply by broadening accessory dwelling unit criteria, but at the same time, the agencies are growing more cautious about opening up the credit box.

"This isn’t about expanding the box," Donna Corley, executive vice president and head of single family at Freddie Mac, said at the Mortgage Bankers Association's Secondary Conference. She characterized such moves as being more about “who have we missed in the past?”

The government-sponsored enterprise executive’s comments point to a balance that housing agencies increasingly need to strike as they work to fulfill Biden administration goals to equitably serve borrowers and address housing shortages, while also managing late-cycle housing risk.

Fannie Mae is being cautious about the credit box given the “mild recession” its economic forecast suggests could occur late next year, Executive Vice President Malloy Evans said.

The Federal Housing Administration also is concerned about considering the increased potential for future financial distress in setting its lending parameters for the first-time homebuyers it serves.

“We don’t want to do it at the expense of sustainability,” said Julienne Joseph, deputy assistant secretary at the FHA, while speaking on a separate government lending panel, when asked about sellers not accepting FHA offers, and whether the agency would consider relaxing its requirements to make its loans more competitive in the market. “Our borrowers are way more sensitive to an economic downturn.”

The Department of Urban Development is still very interested in seeing if a meaningful premium cut is feasible and modeling the potential impact, according to Joseph.

“This is one of the secretary's most major priorities at this point,” Joseph said. 

The thinking within HUD is that if a cut is to be made, it should be a significant one, she said.

“We want to make sure we are helping as many borrowers as possible…We understand that there is an expectation for us to make a move,” said Joseph. “It’s a balancing act but we’re having a lot of conversations.”

While lenders will have to wait and see whether a large move like a FHA mortgage insurance premium cut could occur, they can expect to see the trend toward more small-scale underwriting flexibilities continue.

Freddie’s expansion of ADU financing should be finalized within a couple weeks, according to Corley.

Under the new parameters, Freddie will accommodate loans that finance two- and three-unit properties. The government-sponsored enterprises also will provide more flexibility related to leveraging income from renting out ADUs.

And within a couple weeks, Freddie Mac plans to extend authorizations for the use of digital bank-data validations for assets and income so that they also can be utilized for 10-day pre-closing verifications of employment, Corley said. 

Freddie also is reporting progress in a recent initiative in which multifamily borrowers the GSE backs help renters establish payment histories that can help set them on the road to homeownership if they choose. At least 13,000 renters now have track records as a result of this effort, Corley said.

Additionally, Fannie is continuing a recent effort to underwrite more single-family borrowers who otherwise wouldn't have sufficient credit history using rental data, Evans said.