The National Association of Realtors on Tuesday sent a letter to the Senate lauding legislation that would adjust credit score models used by Fannie Mae and Freddie Mac, extend regulatory authority over home energy efficiency upgrades and clarify lending rules it considers confusing.
With passage in the Senate expected as early as this week, the bipartisan “Economic Growth, Regulatory Relief and Consumer Protection Act” would untangle community banks with less than $10 billion in assets from some federal regulations under the Volcker Rule while freeing them from other capital requirements under the Dodd-Frank Act.
But for homeowners, lenders and real estate agents, several other less-scrutinized provisions under Senate Bill 2155, also known as the Dodd-Frank Reform bill, could have a greater impact on the housing market, wrote NAR president Elizabeth Mendenhall in a March 13 letter addressed to the Senate.
“On behalf of the 1.3 million members of the National Association of Realtors (NAR), I want to express NAR’s support for S. 2155, the ‘Economic Growth, Regulatory Relief and Consumer Protection Act,’” wrote Mendenhall in the one-page letter. “This bipartisan legislation includes several provisions that are positive steps for our nation’s housing sector.”
Among other provisions, the bill would significantly revise credit scoring models to include utility and bill payment histories, among other predictive metrics, that could pave the way to homeownership for millions of otherwise qualified borrowers, according to language in the bill. Currently, the credit scoring model used by Fannie Mae and Freddie Mac relies heavily on a potential borrower’s payment history on credit cards, mortgages and auto loans.
If passed, Fannie Mae and Freddie Mac, which backed nearly half of all mortgage originations in 2017, would be forced to consider scoring systems outside of Fair Isaac Corp.’s well-known FICO score, its current credit score provider. The company’s biggest competitor is VantageScore Solutions, a credit score system owned in part by Equifax, the company that exposed hundreds of thousands of customers following a massive data breach last year.
“Fannie Mae and Freddie Mac are the largest mortgage purchasers in the nation, but they rely on credit score models that do not take into account factors as simple as whether borrowers have paid their rent or utility bills on time,” wrote NAR President Elizabeth Mendenhall in the letter. “New credit scoring models that incorporate additional predictive metrics and payment history will open homeownership opportunities for many minority and underserved borrowers who lack access to traditional forms of credit.”
Elsewhere in the legislation, a provision that would give the Consumer Financial Protection Bureau authority to regulate Property Assessed Clean Energy (PACE) lenders was also cheered by the real estate trade association.
If passed, the provision would require the CFPB to oversee PACE lenders as they corroborate a homeowner’s ability to repay loans levied as tax assessments on their homes. Under current law, a homeowner who receives lending through the PACE program is often exposed to unique challenges when it comes time to sell because the mortgage is subordinate to the PACE lien, according to a NAR policy expert who spoke to Inman News. Meanwhile, homeowners who upgrade property with renewable energy installations like insulation, air sealing and cool roofs are not required to conform to the same underwriting and disclosure requirement as they would be for a conventional mortgage, according to the NAR expert.
Finally, NAR voiced support in the letter for amendments to the Federal Deposit Insurance Act to clarify requirements for acquisition, development, or reconstruction loans (ADC) often used in the purchase of land or property for commercial use. Currently, the Commercial Real Estate Exposures Rule requires banks to hold higher capital standards against certain ADC loans and lower standard for other ADC loans. The distinctions, said Mendenhall, can often be perplexing to lenders.
“[The bill] provides clear guidance to lenders on which loans qualify as HVCRE and thus must comply with the higher risk-weight, as well as specific exemptions to that requirement, resolving confusion and discrepancies in how it is applied,” wrote Mendenhall. “In many areas of the country, manufactured homes are the best option for quality affordable housing. Realtors support clarifying that manufactured home retailers and salespersons are not loan originators.”