December Legislative Update: Proposed Increase to Residential Appraisal Threshold
Philip Weiden | December 2018
On Nov. 20, 2018, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation (collectively “the agencies”) released a proposed rule that would increase the current threshold for residential real estate transactions requiring an appraisal to $400,000.
The current threshold is $250,000. In lieu of an appraisal, an evaluation would be required that is consistent with safe and sound banking practices. This rule would only affect federally-related transactions overseen by the agencies. Residential real estate transactions covered by the Fair Housing Administration, the U.S. Department of Veterans Affairs, the U.S. Department of Agriculture, Fannie Mae, and Freddie Mac would still be subject to those entities’ appraisal requirements.
NAR Meets with Chairman Hensarling On Housing Finance Reform
On Nov. 14, 2018, NAR legislative staff met with House Financial Services Committee Chairman Jeb Hensarling (R-TX) to discuss his recent housing finance reform discussion draft called the “Bipartisan Housing Finance Reform Act of 2018,” which is co-sponsored by Rep. John Delaney (D-MD).
The proposal directs Ginnie Mae to guarantee mortgage-backed securities that are backed by loans with various credit enhancements. In addition to borrowers having more skin in the game, additional credit enhancements must come from Federal Housing Finance Agency-approved private credit enhancers. Once appropriate credit enhancements have been made, Ginnie Mae-approved issuers will then be allowed to issue government-backed securities through its platform.
NAR supports many components of the legislation such as an explicit government guarantee, flexibility given to regulators to set standards in the new mortgage finance system, and the use of a Common Securitization Platform as the issuance platform for mortgage-backed securities. These provisions will help build a new housing finance system structure that will be more transparent, while providing a countercyclical mechanism to help ensure mortgage credit is available during periods of economic distress.
While these components are a good foundation for a future housing finance market, NAR provided suggestions to the committee chairman that would improve the proposal. Among other things, NAR suggested to include language that would require Ginnie Mae to have a dual mandate to safeguard the secondary mortgage market, but also to ensure for a deep, liquid, affordable, and national mortgage market. Finally, NAR committed to continue to work with the chairman to create a mortgage market that provides access to affordable mortgage credit for all creditworthy Americans, while ensuring taxpayers are properly protected.
NAR Responds to FHFA’s Proposed Capital Rule
NAR submitted a letter to the Federal Housing Finance Agency in response to the agency’s request for input on its proposed capital framework for Fannie Mae and Freddie Mac (the GSEs or Enterprises). The proposed framework would not be implemented until the Enterprises are taken out of conservatorship.
BCFP Hosts Industry on QM Rule
The Bureau of Consumer Financial Protection hosted the first of several industry meetings recently examining the Ability-to-Repay/Qualified Mortgage Rule (ATR/QM) in anticipation of their five-year assessment of the rule, due in early 2019. The bureau previously issued a request for information on the rule, which NAR submitted.
The discussion largely focused on how to address the QM patch, set to sunset when the conservatorship ends and no later than Jan. 10, 2021, and flexibility with Appendix Q standards, debt-to-income ratio calculations and points and fees calculations. There was general consensus around the importance of such issue standards, but with reasonable considerations to adjust for varying factors. A great part of the discussion also highlighted the need for flexibility for creditors when it comes to self-employed income, which includes a large majority of NAR’s members and is increasing due to the rise in gig economy workers. Such flexibility, such as through residual income testing, would ensure that Appendix Q underwriting guidelines are not inadvertently leaving these borrowers with less options than salaried employees.