Government Agencies Strive to Be More Lender-Friendly

Mike Sorohan msorohan@mba.org

May 23, 2019

NEW YORK--Representatives from government housing agencies said they are making progress in breaking down barriers that discourage mortgage lenders and servicers from working with them.

BrianMontgomeryFHA Commissioner Brian Montgomery, speaking here at the MBA National Secondary Market Conference & Expo, said FHA is at an "important crossroads."

"It's clear that our regulatory compliance standards discourage depository institutions from participating as FHA partners," Montgomery said. "I strongly believe this discouragement has a huge impact on FHA products."

Montgomery said he is committed to evaluating policies to encourage more FHA lending, citing efforts to increase transparency and ease regulatory burdens. Last week, for example, FHA announced changes to its loan level and annual certifications and defect taxonomy; in March, FHA announced changes to its TOTAL Scorecard.

"Our ultimate goal is to be fair," he said. "We'll continue to hold lenders accountable...but we also want to encourage borrowers to look to FHA. We believe these adjustments will improve our risk management and better evaluate risk at the margin, so lenders can participate with more confidence."

Montgomery said FHA is also committed to housing finance reform, participating in Cabinet-level and external discussions that have included input from MBA. "I look forward to continued dialogue and your continued support," he said.

Ginnie Mae Acting President Maren Kasper said the agency is on track for its Ginnie Mae 2020 modernization initiative, designed to employ technology to make participating easier and to better mine data.

"It better benefits us and our partners in making our processes more efficient," Kasper said. "We've all been working together to ensure we are ready to accept digital mortgages."

GovtPanelAnother component of Ginnie Mae 2020 is stress-testing. "This is a difficult policy to implement and a difficult model to build," she acknowledged. "But it's important that we know how our issuers can withstand downward scenarios...we continue to refine this policy so that we can effectively manage risk, without being too disruptive to our issuers."

Gisele Roget, Deputy Assistant Secretary of Single-Family Housing with FHA, said despite funding allocation issues--Congress has allocated $20 million of the $80 million it needs--the agency is taking steps toward modernizing its outdated technology.

"We've been using legacy systems that have been in place since before some of us were alive," Roget said. "We want to get digital; we want to get away from the thousands of paper-based documentation we use every year...we want to have a system that is fully digital. We have a roadmap that the previous Administration outlined and we are working now to put it in place."

Roget said the FHA proposed revisions to loan-level certifications and defect taxonomy is designed to bring added clarity for compliance. "We understand that for lenders who have stayed in the FHA program, as well as those who have left, need that certainty," she said. "We have tried to make it clear that as these changes encourage more lending, it will also lead to more lending to minorities, who are being affected by the lack of participation."

MBA Chairman Christopher George suggested that Ginnie Mae's and FHA's long-awaited improvements to their technology platforms could ultimately prove beneficial--if they get it right the first time.

Joaquin Tremols, Director of Single-Family Housing with the Guaranteed Loan Division with USDA Rural Development, said his department faces similar funding issues; however, Congress did authorize RDS to impose a $25 "technology fee," beginning this October, that will enable the agency to go paperless.

"It's made the process much more efficient for us and for lenders, to the point where we've been able to centralize our processes," Tremols said. "Instead of having 47 different regional offices, we will have a central office in Washington that will enable more consistent decision-making and save us money."

John Bell III, Deputy Director of Loan Guaranty Services with the Department of Veterans Affairs, said technology is disrupting his agency as well. "Technology is giving us more certainty in our processes," he said. "It's been more beneficial for our partners and it's giving us a lot more data to work with."

Bell said VA has been very aggressive on loan "churning." "It's an issue involving 12-13 lenders that is more about the spirit of the law instead of the letter of the law," he said. "Congress gave us six months to come out with a new rule--for a process that usually takes about two years."

Nonetheless, the proposed rule came out in February. "For us, the next step is coming out with a new rule by the end of the year," Bell said.

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