May 13, 2014

Watt: No change in DTI, loan limits for Fannie, Freddie

May 14, 2014 – As NAFCU has urged, Federal Housing Finance Agency Director Mel Watt on Tuesday said his agency does not plan to change its policy of allowing debt-to-income ratios above 43 percent for some loans purchased by Fannie Mae and Freddie Mac.

Watt, speaking at a Brookings Institution event, added that FHFA will not reduce the current limits on the size of loans that can be purchased by the GSEs.

"NAFCU welcomes Director Watt's announcement," said Carrie Hunt, NAFCU's senior vice president of government affairs and general counsel. "We want to thank Director Watt for heeding concerns raised by NAFCU and its member credit unions about the need for flexibility in providing mortgages and to avoid unnecessary changes that could disrupt the housing market."

Regarding the DTI issue, Watt said current Fannie and Freddie guidelines make some loans with DTI ratios exceeding 43 percent eligible for purchase "when the borrower has other compensating strengths." He added, "FHFA will continue to permit these compensating factors in each company's underwriting standards. As part of our ongoing safety and soundness obligations, we will, of course, continue to monitor performance data relating to these factors."

Referring to last year's FHFA proposal to reduce loan limits, Watt said after a thorough review of comments received, the proposal will not be implemented. "I am announcing today that FHFA will not use its authority as conservator to reduce current loan limits," he said. "This decision is motivated by concerns about how such a reduction could adversely impact the health of the current housing finance market."

In additional comments, Watt said FHFA will seek comments on guarantee fee increases. NAFCU urged that the hikes set to take effect earlier this year be withdrawn, and Watt postponed them pending further review. "We appreciate the decision to go to comment on this and will submit input," Hunt said.

Mark-up of a housing finance reform package is set to resume at 10 a.m. tomorrow in the Senate Banking Committee.

An updated manager's amendment, set to be offered by Committee Chairman Tim Johnson, D-S.D., and Ranking Member Mike Crapo, R-Idaho, was circulated this morning and itself has been revised further to limit vertical integration. It would also require a report back to Congress within two years evaluating the effectiveness of the creation of the small lender mutual corporation.

In other comments Tuesday, Watt said FHFA is making a number of refinements on representations and warranties – that is, repurchase requirements – that build upon the agency's work in this area last year. This is also addressed in FHFA's strategic plan for its conservatorship of Fannie and Freddie.