Housing regulator to tighten restrictions on government-backed home loans

Beginning in January, Fannie and Freddie will no longer purchase “interest only” or 40-year loans, or those with points and fees totaling more than 3 percent of the total amount of any loan, according to the FHFA.

The guidance comes as the agency and Congress look to chart a path toward transitioning the enterprises out of federal conservatorship.
   
“Adoption of these new limitations by Fannie Mae and Freddie Mac is in keeping with FHFA’s goal of gradually contracting their market footprint and protecting borrowers and taxpayers,” the agency said Monday.

The directives follow regulations issued in January by the Consumer Financial Protection Bureau (CFPB) that, for the first time, laid out a set of “qualified mortgage” criteria. If lenders follow the standards, which are designed to ensure borrowers are able to repay their home loans, they are afforded certain “safe harbor” protections from litigation.

Certain exceptions were allowed for borrowers who qualify for loans backed by Fannie and Freddie. The FHFA directive pushes the government-backed enterprises more in line with the qualified mortgage standards, prompting concern from at least one sector of the financial industry.

The National Association of Federal Credit Unions NAFCU issued a letter to acting FHFA director Edward DeMarco, warning that the added restrictions could serve only to further limit the options of borrowers in rural or underserved areas.

“The end result is that a number of otherwise financially healthy borrowers, who do not meet the stringent qualified mortgage standards for one reason or another, may be denied a mortgage,” wrote Carrie R.  Hunt the NAFCU’s general counsel and vice president of regulatory affairs.

That, Hunt said, would cause the market to contract, “further exasperating the issues facing all involved parties.”