In our last update for 2024, we look at buyback trends from Freddie and Fannie; FHFA’s new confirming limits; the trigger lead bill; proposed new guidelines to use rental income on mortgage applications; and more!
Freddie Mac Buybacks are Higher While Fannie Mae’s are Down
Fannie Mae and Freddie Mac reported different trends in seller buybacks during Q2 2024. Fannie sellers repurchased $269.50 million of defective loans during Q2, a 27.7% decline from Q1. Meanwhile, Freddie Mac reported $430.02 million in lender buybacks in Q2, a 29.1% increase. Together, seller repurchases were down 0.8%, according to GSE disclosures. Since 2016, repurchases as a share of new mortgage-backed securities issuance have been running higher at Freddie than at Fannie.
Earlier this year, Freddie piloted an alternative to its repurchase program. Instead of making lenders repurchase defective but performing loans within the first 36 months of origination, the GSE instituted a fee-based structure that incentivizes originating high-performance loans. Participating lenders with a low non-acceptable quality (NAQ) rating, for example, won’t be subject to buyback requests for most performing loans. Those with higher defect rates, on the other hand, are charged fees based on a sliding scale determined by their NAQ. Under the new plan, Freddie said that lenders won’t be required to buy back most loans with significant defects as long as they are performing. Loans that default within the relief period will still be subject to buybacks.
FHFA Raises Conforming Loan Limits
As anticipated, the Federal Housing Finance Agency (FHFA) announced that the new conforming loan limits for Fannie Mae and Freddie Mac loans will be $806,500 in 2025, an increase of 5.2% from 2024’s cap of $766,550. In high-cost areas where 115% of the local median home value exceeds the conforming loan limit value, the applicable loan limit will be higher than the baseline loan limit. Due to rising home values, the new limits will be higher in all but six U.S. counties or county equivalents.
Scott Turner Tapped as New Head of HUD
President-elect Donald Trump has chosen Scott Turner, the former executive director of the White House Opportunity and Revitalization Council (WHORC), to serve as the next secretary of the U.S. Department of Housing and Urban Development (HUD) in his administration. MBA’s president and CEO Bob Boreksmit issued a statement offering congratulations. “On behalf of MBA, I congratulate Scott Turner on being nominated to serve as the next HUD Secretary. Pursuing policies and initiatives that help solve our nation’s housing affordability crisis for owners and renters should be a top policy priority under the Trump administration. Scott’s leadership as executive director of the [WHORC] in the first Trump administration, where, alongside Secretary Ben Carson, he was instrumental in implementing Opportunity Zones, will serve him well.”
Trigger Lead Bill Won’t Pass This Year
A bill aimed at limiting the use of credit trigger leads was excluded from the Senate’s Fiscal Year 2025 National Defense Authorization Act (NDAA) and does not look like it will be passed this year. Trigger leads occur when a potential borrower’s credit score is pulled for a mortgage application, and credit bureaus sell this data to companies seeking to contact the borrower. While legal, this practice often results in borrowers receiving a flood of unsolicited calls, texts, and emails. Currently, the industry operates on an “opt-out” basis, but Senate Amendment 2358 proposed shifting to an “opt-in” model, with certain exceptions. However, credit bureaus advocated for a more lenient approach, allowing companies to solicit borrowers by phone if they are the current mortgage originator or loan servicer. They also pushed for an amendment permitting companies to send “written offers” via mail, email, or text to borrowers obtained through mortgage leads.
FHA May Allow Borrowers to Use Rental Income in Applications
The Federal Housing Administration (FHA) has proposed a new guideline that could allow borrowers to qualify for FHA mortgages using rental income from individuals living in their homes. The draft Mortgagee Letter outlined changes to how rental income, often referred to as “boarder income,” can be documented and calculated during underwriting. FHA’s Office of Single-Family Housing said the proposed change aims to make it easier for borrowers to use boarder income as a source for qualifying for a mortgage. Under current rules, borrowers must demonstrate a two-year history of boarder income to use it for mortgage qualification. The new proposal reduces this requirement to just 12 months, making it accessible to more borrowers. The proposed guidelines also introduced a cap to not exceed 30% of the borrower’s total monthly effective income, ensuring that boarder income serves as a supplementary source of funds without overshadowing the borrower’s primary income.
About This Blog:
What We’re Watching is a monthly blog of industry news curated by Brian Haber, who monitors the mortgage market for First American Data & Analytics.