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Weekly update from the National Housing Conference
News from Washington
House hearing examines FHFA’s COVID-19 response and conservatorship timeline

This week, the House Financial Services Committee convened a hearing to review the Federal Housing Finance Agency’s (FHFA) response to COVID-19. Committee Chairwoman Maxine Waters (D-Calif.) was critical of the agency’s actions, including the introduction of the new adverse market refinance fee, and the decision to move forward with the regulatory capital framework rulemaking for Fannie Mae and Freddie Mac. Rep. Waters said, “Instead of focusing on how to help homeowners and renters and how to support the housing market during this national emergency, Director Calabria’s actions suggest that he is first and foremost interested in filling the coffers of Fannie Mae and Freddie Mac so that he can continue to move forward with his plans to release them from conservatorship.” FHFA Director Mark Calabria defended FHFA’s actions during his testimony, saying “The FHFA team has gone above and beyond in carrying out FHFA’s statutory responsibilities while also rising to meet the challenges presented by COVID-19.” 

Rep. Carolyn Maloney (D-N.Y.), chairwoman of the House Oversight and Reform Committee, said during the hearing, “I think we all agree that we can’t keep Fannie and Freddie in conservatorship forever, but we want to make sure they have enough capital, and that the right regulatory regime is in place, before we release them. I think we need to be very cautious about this.” Rep. Maloney expressed concern that the administration would rush the release of the GSEs from conservatorship before the end of the year. “I can’t envision a scenario where they would be ready to leave before the end of the year,” Calabria responded. “Under no circumstances would I release them if they were not ready to be released.” 
GAO finds GSEs have increased diversity; Rep. Waters says they ‘can do better’

In response to a request from Reps. Waters, Maloney and Joyce Beatty (D-Ohio), chairwoman of the House Financial Services Subcommittee on Diversity and Inclusion, the Government Accountability Office (GAO) conducted a review of the GSEs' diversity and inclusion efforts. Under the Housing and Economic Recovery Act of 2008, Fannie Mae and Freddie Mac are required to promote diversity and the inclusion of minorities and women. GAO recently released the results of its review, which tracked minority-held senior management positions from 2011 through 2018. Over that period, GAO found that the number of women and minorities serving in senior management positions increased at both Fannie Mae and Freddie Mac. The GAO report recognized the GSEs’ diversity initiatives, including “career and networking events to recruit diverse populations and employee mentorship programs.” GAO also highlighted the GSEs' ongoing efforts to increase the use of diverse broker-dealers, although noting that minority broker-dealers are currently only used to a “limited extent.”

Reps. Waters, Maloney and Beatty released a statement reacting to GAO’s findings; Rep. Maloney said it showed “insufficient progress” on the part of the GSEs to diversify their boards, staff and broker-dealer partners. “This GAO report demonstrates that despite efforts to increase diversity, there has been a troubling lack of growth in diversity and inclusion at Fannie and Freddie,” said Rep. Waters. “According to the report, the percentage of women of color in senior management roles at both Fannie and Freddie remained in the single digits from 2011 to 2019. The GSEs can and must do better.” 
The need for congressional action to support struggling households persists

While the prospects for the passage of rental assistance before the Sep. 30 fiscal deadline remain slim, the Problem Solvers Caucus recently released a framework for a larger COVID-19 relief package. The caucus, which is comprised of 50 bipartisan members of Congress and led by Reps. Josh Gottheimer (D-N.J.) and Tom Reed (R-N.Y.), outlined a plan that would include continued unemployment insurance and direct stimulus. The framework includes additional support for small businesses, nonprofits, schools and childcare providers, housing, states and localities. The caucus proposed $25 billion in rental assistance to be allocated to low-income households and rent stabilization programs.
Rep. Reed said in a statement, “Our framework reflects months of bipartisan consensus-building on the actions the federal government can take to help working families and local communities across the country as they navigate the impacts of COVID-19. We are hopeful this package will help bring lead negotiations back to the table as we try to solve this problem for the American people.”  
Housing organizations continue to advocate for urgent congressional action to provide emergency rental relief. Seven organizations, including the Housing Partnership Network, National Housing Trust and Stewards of Affordable Housing for the Future, released a joint statement this week urging Congress “to provide rental assistance, paired with financial support for affordable housing providers, to avoid widespread homelessness and the loss of affordable homes.”
CFPB’s supervisory report flags fair lending and mortgage servicing violations

The Consumer Financial Protection Bureau’s (CFPB) Supervisory Highlights, which summarizes the findings of examiners in the second half of 2019, reports on the prevalence of fair lending and mortgage servicing violations in the mortgage lending space. During the specified period, CFPB examiners observed redlining practices aimed at discouraging minority borrowers from applying for a mortgage. The report describes the unfortunate practice of advertising featuring “almost exclusively White models” and says that in this incidence the analysis of Home Mortgage Disclosure Data (HMDA) confirmed “the lenders’ intent to discourage prospective applicants from majority-minority neighborhoods.” The CFPB supervisory observations also underscore the importance of HMDA data collection and a robust regulatory regime in ensuring the appropriate enforcement of fair housing protections.

The report cites a wide range of violations across mortgage servicers, including failure to provide consumers in bankruptcy with required statements, inappropriately charging force-placed insurance, delayed refunding of force-placed insurance charges and failure to provide disclosure of loan ownership transfers. Notably, in April of this year, CFPB and other federal regulators, including the Federal Reserve, Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency, issued a joint statement extending more regulatory flexibility to mortgage servicers working to support homeowners affected by COVID-19. Under the temporary policy, CFPB and other regulators will not take any supervisory or enforcement actions against servicers for delays in notices if servicers are making “good faith efforts” to provide notices on a timely basis, delays in annual escrow statements, and delays in notifications regarding incomplete loss mitigation applications, “provided the servicer sends the acknowledgment notice before the end of the forbearance or repayment period.”
Mortgage lenders embrace eNotes in a virtual environment

In a largely virtual origination environment, mortgage lenders have increasingly turned to eMortgages, including electronically executed, registered and stored promissory notes. While eNotes accounted for about 3% of loans purchased by the GSEs in 2019, that share increased to 4.25% this year. FHFA’s Office of Inspector General (OIG) took notice of this trend. With both Fannie Mae and Freddie Mac indicating they expect the share of eNotes to continue to rise in 2020 and 2021, OIG published a white paper identifying the risks and opportunities associated with greater adoption.

“eMortgages offer borrower convenience, minimize post-closing review delays, eliminate the need to physically transfer a note, and make closings easier while allowing social distancing, an attractive feature during the COVID-19 pandemic,” OIG states in its report. Among the potential risks, OIG identified counterparty, third-party and cybersecurity risks.

The GSEs are not alone in the increasing prevalence of eMortgages. Fitch Ratings commented, “Shutdowns and social distancing measures have led to a greater reliance on digitalization of certain aspects of the mortgage origination process, and this has facilitated the implementation of eMortgage processes.” And while the volume of the eMortgages, including eNotes remains relatively small, Fitch noted, “process and policy changes made in response to the pandemic facilitated increased electronic emphasis in many other aspects of the mortgage origination process.”

The increasing digitization of the mortgage origination process has been linked to greater operational efficiency for mortgage lenders. In August, the Federal Home Loan Banks announced a new partnership with MERSCORP to allow member financial institutions to use eNotes on the MERS® eRegistery – an online system that tracks and stores eNote custodian information. 
Chart of the Week
Chart of the week: Strong housing market a double-edged-sword 

Fannie Mae released its latest Economic and Housing Outlook, which suggests the strong housing market is leading the larger economic recovery. The analysis points to several factors, including “historically low mortgage rates,” and “increased interest in moving to suburban areas” as contributing to the ramp-up in purchase demand. This demand, however, has worsened inventory challenges. Fannie Mae found that the supply of homes on the market in July dropped 26% year-over-year and represented the lowest level ever recorded for the month. 
What we're reading
Chicago’s Department of Housing recently published a report on the work of the city’s Inclusionary Housing Task Force, which was established in October 2019 to ensure equal access to affordable housing. The report envisions changes to Chicago’s Affordable Requirements Ordinance. In a statement Mayor Lori Lightfoot said, "All Chicagoans, regardless of their circumstances, deserve equal access to live and lead happy, fulfilled lives in whichever neighborhood they choose. This report is a critical first step to making this vision a reality and continues our efforts to create a more equitable Chicago.”
New analysis from the Terner Center for Housing Innovation at UC Berkeley is the first to follow the income over time of residents of Low-Income Housing Tax Credit-funded properties. The analysis confirms the positive influence of housing assistance in advancing economic security and mobility for low-income households.
Households living in historically redlined neighborhoods are seeing a relatively higher prevalence of COVID-19 in their communities, a study from the National Community Reinvestment Coalition finds. The study links the systemic effects of limited access to investment and other financial resources to poverty, reduced life expectancy and chronic diseases, all of which are “risk factors for poor outcomes from COVID-19.” 
The week ahead
Monday, September 21
Tuesday, September 22
Wednesday, September 23
Thursday, September 24
Friday, September 25
The National Housing Conference has been defending the American Home since 1931. We believe everyone in America should have equal opportunity to live in a quality, affordable home in a thriving community. NHC convenes and collaborates with our diverse membership and the broader housing and community development sectors to advance our policy, research and communications initiatives to effect positive change at the federal, state and local levels. Politically diverse and nonpartisan, NHC is a 501(c)3 nonprofit organization.
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