FHFA's Thompson blames "certain media" for distorting info about fees

Federal Housing Finance Agency Director Sandra Thompson once more pointed out misunderstandings from stakeholders regarding plans to update pricing grids during an appearance before the House Financial Servicing Committee Tuesday.

In a written testimony published prior to her appearance, Thompson noted that "media reports often make the fundamental mistake of assuming that the pricing grids previously in place were perfectly aligned with the risks faced by the Enterprises."

"I would like to dispel that myth: in fact, the pricing grids in effect prior to these updates had not been updated in many years and were not fully reflective of the capital framework with which the Enterprises are required to comply," she wrote.

During her live opening remarks before the lawmakers Tuesday, Thompson reiterated that borrowers with strong credit profiles are not being penalized to benefit borrowers with weaker credit profiles. She said changes to the price grids would help creditworthy first-time homebuyers, while enhancing safety and soundness of the enterprises by building capital. 

Even with reduced fees, borrowers with a down payment smaller than 20% will continue to pay higher overall mortgage costs, in part because they must purchase mortgage insurance, which is something that does not show up on pricing grids, she said. 

"That's why many loans with loan-to-value ratios greater than 80% have what looks like lower fees, but you have to add the mortgage insurance premium to these loans to get a more complete picture of borrower cost," she said to lawmakers. "The less down payment you have, the more MI you need and the higher the cost."

In early May, the FHFA walked back part of the update, dropping the loan level price adjustments based on the borrower's total debt-to-income ratio, which was originally set to go into effect May 1 and later delayed until August. Soon after dropping the DTI-based pricing, the agency put out a request for industry feedback about its grids and plans for its Enterprise Capital Framework.

In the hearing, Thompson also responded to questions about whether Fannie Mae and Freddie Mac will be released from conservatorship, progress on reviewing the Federal Home Loan Bank System and the upcoming changes to credit scoring models.

She said that the FHFA currently does not have a plan to release the enterprises out of conservatorship, but that meeting their capital requirements is a good start. "Ensuring that they have appropriate pricing and that they can make commercially viable returns is a critical component of [Fannie Mae and Freddie Mac being released from conservatorship]," Thompson said.

Regarding the review of FHLBanks, a report will be published in the third quarter of this year. From what has been reviewed so far, stakeholders say the system has been "a stable and reliable source of liquidity for housing finance for its members," per Thompson's written testimony.

Thompson also faced numerous queries from both sides of the aisle about the upcoming transition to a bi-merge credit report requirement, which will change the process for lenders selling loans to government-sponsored enterprises Fannie Mae and Freddie Mac from using three merged credit reports (from Equifax, Experian and TransUnion) to two scores: FICO 10T and VantageScore 4.0. Lawmakers questioned the necessity of the change.

Thompson said the change will "lower the costs for buyers." At the Mortgage Bankers Association's Secondary and Capital Markets conference in New York this week, Naa Awaa Tagoe, deputy director, FHFA division of housing mission and goals, said the agency will consider industry feedback on the timeline for implementation of the new system. 

"Currently, the estimate is at the end of 2025, but … the types of data that stakeholders need to recalibrate, views of risk, etc., all of that will inform the timeline," she said.