​​​​​​Sandra L. Thompson, Director

Federal Housing Finance Agency

MBA KEYNOTE REMARKS AS PREPARED FOR DELIVERY

Monday, October 16, 2023

​Thank you for the opportunity to be here once again at MBA's Annual Convention. I always appreciate the chance to be with you all and to share the stage with such great leaders. And I also want to acknowledge the leadership of Bob Broeksmit and give my thanks to the hardworking staff at MBA who made this event possible.

As many of us are aware, the robust mortgage market of 2020 and 2021 is far behind us, and the combination of high home prices, elevated mortgage rates, and low housing supply has been challenging for the industry and for consumers alike.

In a housing market like this one, it is all the more important that both our policies and the industry's efforts align to support existing and aspiring homeowners. That is why I believe a model based on partnership and mutual feedback is necessary for us to achieve our shared goal of promoting affordable and sustainable housing opportunities.

At FHFA, we've been as busy as ever conducting our work to ensure our regulated entities advance their missions in a safe and sound manner. This includes Fannie Mae and Freddie Mac, which I'll refer to collectively as the Enterprises, and the Federal Home Loan Banks.

Since I last addressed this audience, we have finalized a framework governing the oversight of new activities at the Enterprises, enhanced the Enterprises' pricing framework, put in place improved payment deferral options for struggling homeowners, and hosted our first TechSprint – to name a few accomplishments.

Those of you in this audience see the effects of our policies each and every day, and you know how these policies translate into housing opportunities for consumers. And we strive to ensure you all have clear rules of the road to provide these opportunities and make affordable, sustainable housing a reality.

Loan Repurchases

With that, let me turn to a topic that has received quite a bit of attention from the industry recently: loan repurchases at the Enterprises.

First, let me note that when we think about loan repurchases, we expect to see a balanced approach that promotes high-quality underwriting. Loan quality is a shared responsibility with the industry and the Enterprises.

For lenders, this means FHFA expects them to deliver loans to the Enterprises that are consistent with the Enterprises' selling guides.

And for the Enterprises, this means FHFA expects them to implement a fair, consistent, and predictable process for identifying loan defects and the appropriate remedies.

Fortunately, because of the extensive work on the Rep & Warrant Framework several years ago - there is a system in place meant to ensure fair, consistent, and predictable remedies when a loan does not meet the Enterprises' standards.

We also recognize that there are several factors that have affected this process recently.

First, after multiple years of record-high loan volume, we have seen an increase in the absolute number of repurchase requests – which is to be expected.

The good news is that there has been a large decrease in repurchase requests since their peak in early 2022, as the Enterprises have worked through loans originated during the refinance boom.

We know that a key factor contributing to the severity of this issue is today's higher interest rate environment, in which the losses associated with repurchasing low interest rate loans can be quite steep.

We have also heard the industry's concerns regarding loan defects that may not rise to the materiality necessary to justify a repurchase.

In response to this confluence of factors, we and the Enterprises have taken a close look at their existing processes and practices to ensure they are appropriate and meet the objectives I described earlier.

The Rep & Warrant Framework remains a crucial component of sound risk management, and we have placed additional focus on our work with the Enterprises to ensure that it is being applied predictably and consistently.

This work includes efforts by the Enterprises to improve the language in the selling guides to be clearer and to provide more consistent feedback to lenders when a repurchase request is made, which we believe will lead to less ambiguity in underwriting.

We also know that there continue to be concerns regarding the rep & warrant treatment of loans where the borrower obtained a COVID-19 forbearance plan.

Forbearance and loss mitigation tools such as payment deferral, repayment plans, and loan modifications kept borrowers in their homes during an unprecedented public health crisis, and I am proud of the quick and effective joint efforts between industry, lawmakers, and regulators to avoid what could have been a massive foreclosure crisis.

Mortgage servicers were at the center of these efforts, offering relief and long-term solutions at the direction of policymakers, generally with rapid implementation timelines.

Therefore, I am announcing today that we have directed the Enterprises to extend their rep & warrant policies for loans affected by natural disasters to cover mortgages that have successfully exited a COVID-19 forbearance plan. 

Now, loans that are eligible for repurchase relief after three years will not lose this relief due to a COVID-19 forbearance. Similar to the Enterprises' natural disaster policies, missed payments during the COVID-19 forbearance will not cause a loan to lose eligibility for the 3-year rep & warrant sunset.

Finally, we remain open to additional options that would ensure alternatives to repurchases are available and offered on a regular basis – and work on this front remains ongoing. While many of the details remain in development, we are considering initiatives to test and learn from various options for performing loans with defects.

Taken as a whole, we believe these are meaningful improvements to uphold quality control while ensuring high-quality underwriting.

Appraisal Data and Modernization

Now, I will shift to our efforts related to appraisal data and appraisal modernization. At FHFA, we continue to focus on addressing appraisal bias and enhancing broader appraisal policies to promote safety and soundness.

Last year at this convention, I announced the release of the Uniform Appraisal Dataset – or UAD – Aggregate Statistics, a database derived from more than 47 million appraisal records.

While the ongoing quarterly release of the UAD data was an important and unprecedented first step, we also recognized that there are limits to what can be understood through aggregate data.

One year later, I'm pleased to announce that we are releasing data at the appraisal level for the first time. The new UAD Public Use File contains appraisal-level records rather than aggregate statistics.

This data will allow stakeholders to continue to shine a light on the issue of appraisal bias and will allow public users to assess that issue as never before, within the framework of our laws that also support a consumer's right to privacy.

Accurate valuations and sound appraisal processes are not just fair lending issues; they are safety-and-soundness issues. These issues can either promote or impair public confidence in our housing finance system, so it's important to get them right.

Credit Score Initiative

I would like to turn to another initiative I announced last year at this convention: the validation and approval of two new credit score models – FICO 10T and VantageScore 4.0 – for use by the Enterprises.

In that announcement, we also said that lenders would have the option to use credit reports from two of the three national consumer reporting agencies rather than requiring reports from all three.

These updates were made to promote a fair and inclusive approach to evaluating borrowers while enhancing competition in the market and lowering costs for consumers.

The new models provide benefits both in terms of accuracy and the number of borrowers scored, while the bi-merge report is expected to maintain accuracy and increase competitive forces– findings supported by internal and external analysis.

Our efforts to implement these changes are moving full steam ahead.

Over the past year, the Enterprises have laid the groundwork by producing a partner playbook, issuing preliminary timelines, and providing training opportunities. They have also taken part in industry education webinars and conducted a survey that received nearly 1,000 responses from market participants.

Most recently, FHFA began a process for hearing from interested stakeholders with a series of forums and listening sessions. 

These public engagement sessions are open to all and will allow market participants to identify issues, opportunities, and challenges associated with the transition. And I encourage you all to participate.

Additionally, FHFA and the Enterprises have been working diligently to provide further resources to stakeholders. I am happy to report that a great deal of progress has been made in our efforts to acquire and publish historical data, which will allow stakeholders to conduct their own analyses of the new models and bi-merge approach. More details on this front will be coming shortly through our stakeholder forums.

Our focus, first and foremost, is on getting this transition process right. We are moving forward with a sense of urgency, while at the same time remaining flexible to operational considerations and new developments. We appreciate your partnership to advance this initiative.

Insurance Issues

At many of my speaking engagements, I often get asked “What keeps you up at night?" That brings me to the final issue I'd like to cover today, which is many times my first answer to that question: the affordability and availability of property insurance, which is a critical safety net for borrowers, lenders, and mortgage guarantors.

The number of natural disasters causing major damage to properties and infrastructure has risen dramatically in recent years, and so too has the stress on insurance markets. 

The data alone should provide a wake-up call. In the 1980s, there was an average of just over three disasters per year causing over $1 billion in inflation-adjusted damages. In every year since 2020, there have been at least 18 – including 24 and counting this year, which have resulted in $67 billion in damages.

Unsurprisingly, reinsurance rates have risen steeply, making it even more difficult for property insurers to manage these risks.

The result has been a sharp increase in the cost of property insurance in several regions throughout the country, as well as some insurers pulling back from certain regions entirely.

When insurance is unavailable or not sufficiently available, mortgages become ineligible for purchase by the Enterprises.

And when existing property insurance policies are not renewed or coverage is reduced, the servicer must find a new insurance provider, almost always at significantly higher cost, which can compromise a borrower's ability to make their monthly mortgage payments.

FHFA cannot solve all of these challenges on our own. That is why, next month, we will be hosting the first in a series of symposiums focused on solutions to promote the availability and affordability of property insurance.

The initial session will be held on November 14th and 15th and will bring together lenders, servicers, property insurance carriers, reinsurers, federal agency representatives, state insurance commissioners, and borrower advocates. I look forward to hearing from them and from many of you in this room on this critically important issue.

 In conclusion, I am proud of the work we're all doing – collectively – to support affordable homeownership and rental housing opportunities throughout the nation.

And I am also proud of the work we have done together to strengthen the safety and soundness of mortgage lending and servicing, and to promote public confidence in the housing finance system in the years since the Great Recession and through the COVID-19 pandemic.

I look forward to continuing to work with you all as we advance our shared goals.

Thank you.