In another move to slam the brakes on the Trump administration’s plans to reprivatize Fannie Mae and Freddie Mac, federal regulators who oversee the mortgage giants have suspended a number of provisions that were put in place in January to dial down Fannie and Freddie’s market share and help them raise capital.

The provisions — announced on Jan. 14, a week before President Joe Biden’s inauguration — included controversial limits on Fannie and Freddie’s purchases of mortgages with “multiple higher risk characteristics,” as well as loans secured by second homes and investment properties.

Critics said capping Fannie and Freddie’s support for those types of loans would mean higher borrowing costs for borrowers, since lenders would be likely to increase down payment requirements and charge higher interest rates and points.

“Any considerations to limit financing on second homes, investor properties or entry-level borrowers will have a negative impact on borrowing costs and a broader impact on the rental market,” the National Association of Realtors warned at the time. “This would only undermine [Fannie and Freddie’s] ability to fund many of their charter duties and appropriately serve U.S. taxpayers and consumers.”

Fannie Mae implemented the changes for second homes and investment properties on April 1, and Freddie Mac published restrictions that took effect on April 15 and May 1.

After the changes took effect, demand for second homes fell sharply in June and July, with July marking the first time since April 2020 that growth in demand for second homes lagged behind primary residences.

With new leadership in place at the Treasury Department and the Federal Housing Finance Agency, Fannie and Freddie will now have the authority to lift those and other restrictions mandated during the final week of the Trump administration.

On Wednesday, Treasury Secretary Janet Yellen and FHFA Acting Director Sandra Thompson — both Biden appointees — notified Fannie and Freddie that they were suspending the Trump administration’s Jan. 14 amendments to Fannie and Freddie’s Preferred Stock Purchase Agreements. Those agreements spell out the terms put in place by the government when it bailed the mortgage giants out in 2008.

Sandra Thompson

“This suspension will provide FHFA time to review the extent to which these requirements are redundant or inconsistent with existing FHFA standards, policies, and directives that mandate sustainable lending standards,” Thompson said in a statement.

The Treasury Department said suspension of the Trump administration’s amendments “recognizes that FHFA has the authority and responsibility for [Fannie and Freddie’s] safety and soundness and to foster housing finance markets that support sustainable homeownership, and is not intended to stimulate aggregate housing demand given current conditions in the housing market.”

Home prices “have been accelerating rapidly, with the annual rate of national home price growth at multi-decade highs,” the Treasury Department noted. “A principal challenge for the U.S. residential housing market today is inadequate housing supply. The Administration is focused on promoting housing stability, which includes advancing housing policies that can sustainably increase the stock of affordable housing units for rent and ownership.”

Robert Broeksmit

Mortgage Bankers Association President Robert Broeksmit said in a statement that the group “applauds the announcement by the Treasury and FHFA that they are suspending the limits” on purchases of certain loan types, lenders’ use of the cash window, and multifamily volumes.

“The suspensions will eliminate several market and pricing disruptions caused by these caps that were harming lenders and borrowers alike and pave the way to restore appropriate regulatory authority to the FHFA,” Broeksmit said.

Reuters reports that Senate Banking Chairman Sherrod Brown also welcomed the move, calling the Trump administration’s amendments “haphazard,” with the potential to “unintentionally restrict access to safe, affordable housing for homeowners and renters.” But the senior Republican on the banking committee, Sen. Pat Toomey, said suspending the amendments risks “overheating an already-hot market,” Reuters reports.

In a separate announcement Wednesday, the FHFA said it’s also proposing to give Fannie and Freddie more leeway to issue securities that transfer risk to private investors — a move that could allow the mortgage giants to provide backing for more loans, without having to sock away as much capital for losses.

“The amendments proposed today will allow the Enterprises to support the housing market throughout the economic cycle in a safe and sound manner,” Thompson said in announcing the proposal. “The proposed requirements provide the Enterprises with the necessary incentives to support sustainable lending initiatives by transferring a significant amount of credit risk away from the taxpayers to private investors that are better positioned to take this risk. I look forward to receiving robust feedback on the proposed amendments.”

It’s been an abrupt about-face for Fannie and Freddie, which under the Trump administration were on a path to privatization. Democrats have put the brakes on those plans, seeing an opportunity to use Fannie and Freddie to provide better access to home loans for underserved borrowers.

A June Supreme Court ruling gave the Biden administration more control over the FHFA. Thompson, who took over as FHFA’s acting director from Trump appointee Mark Calabria, quickly rescinded a 50-basis point refinancing fee instituted last year to help Fannie and Freddie cover anticipated pandemic losses.

The Biden administration is considering nominating the president of the Center for Responsible Lending, Michael Calhoun, as Calabria’s permanent replacement, Politico reports.

The FHFA is accepting comments through Oct. 25 on its housing goals for Fannie and Freddie for 2022 through 2024. The agency wants the mortgage giants to buy more mortgages that are made to low- and very low-income homebuyers, and also meet new goals that support lending within minority census tracts.

FHFA’s proposed housing goals for Fannie Mae and Freddie Mac

The FHFA has said it wants at least 35 percent of the purchase mortgages backed by Fannie and Freddie to be taken out by low- and very-low income borrowers, up from 30 percent today.

Separately, the FHFA has also ordered Fannie and Freddie to submit equitable housing finance plans by the end of year that show how they plan to help reduce racial or ethnic homeownership gaps over the next three years.

Email Matt Carter

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