On December 4, 2008, the Director of the Federal Housing Finance Agency, Jim Lockhart, wrote to NAR President Charles McMillan to follow up on the questions raised by REALTORS® at the Orlando meetings that he was unable to answer at the time. Director Lockhart is the conservator for Fannie Mae and Freddie Mac and the federal regulator of the two government sponsored enterprises (GSEs). In Orlando, Director Lockhart spoke at a standing-room-only session to 600 REALTORS® and then fielded questions for nearly an hour. He also attended the meeting of the Conventional Finance and Lending Committee to discuss GSE issues in a smaller setting.
Here are highlights of the Director’s responses to REALTOR® recommendations that the GSEs:
- Increase the 4-unit investor loan limit. Director Lockhart advised that one of the GSEs is considering raising the 4-loan limit on investor loans (both GSEs permit waivers). [Note: When one GSE makes a policy change, the other very often follows suit.]
- Adopt a process to appeal servicer decisions. Mr. Lockhart notes that the GSEs are working to streamline their loss mitigation procedures. On short sales, they are working on a number of initiatives. He did not indicate that the GSEs are developing an appeals process.
- Establish better foreclosure policies (including concern about banks refusing to work with borrowers until they are at least 90 days delinquent). Mr. Lockhart reviewed the streamlined loan modification program announced shortly after the Orlando meetings by FHFA, Treasury, HUD, and HOPE Now to reduce preventable foreclosures. He did not explain the logic of limiting the new program to borrowers at least 90 days delinquent, but he did refer to other initiatives targeted at borrowers at earlier stages of delinquencies or even those not yet delinquent.
- Reform owner-occupied condo rules. Mr. Lockhart made two points: (1) in an established project, the 51% owner occupancy requirement does not apply to any loan secured by an owner-occupant principal residence or second home, and (2) at least one of the GSEs is considering clarifying the 51% requirement to exclude bank-owned units from being counted as investor units.
- Apply the same underwriting standards to jumbo conforming loans (loans above $417,000 that may be purchased by the GSEs) (the member questioned the assumption that jumbo conforming loans are more risky. Mr. Lockhart believes that jumbo conforming loans are riskier because defaults involving larger loans result in higher losses. He also notes that most jumbos have been ARMS which are relatively riskier and may be hard to refinance.
Embedded below is the full text of Mr. Lockhart’s letter.